<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1997
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
(Exact name of registrant as specified in charter document)
<TABLE>
<S> <C> <C>
DELAWARE 6793 13-3589337
(State of (Primary Standard (I.R.S. Employer
Organization Industrial Identification
of Issuer) Classification Code Number) Number)
</TABLE>
-------------------
Two World Trade Center, 62nd Floor
New York, New York 10048
(212) 392-8899
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Mark J. Hawley
DEMETER MANAGEMENT CORPORATION
Two World Trade Center, 62nd Floor
New York, New York 10048
(212) 392-8899
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Edwin L. Lyon, Esq. C. Robert Paul, III, Esq.
Cadwalader, Wickersham & Taft Dean Witter Reynolds Inc.
1333 New Hampshire Avenue, N.W. 130 Liberty Street
Washington, D.C. 20036 New York, New York 10006
(202) 862-2200 (212) 392-7791
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) FEE(1)
<S> <C> <C> <C> <C>
Units of Limited Partnership
Interest.................... 50,000 Units $2,223 $111,150,000 $33,682
</TABLE>
(1) Offering price and registration fee based on approximate Net Asset Value Per
Unit on March 14, 1997, in accordance with Rule 457(d).
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. REGISTRATION ITEM LOCATION IN PROSPECTUS
- --------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Facing Page; Front Cover Pages.
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Table of Contents.
3. Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges......................... Summary of the Prospectus; Risk Factors;
Description of Charges to the Partnership;
Investment Program, Use of Proceeds and Trading
Policies; The General Partner; The Commodity
Broker.
4. Use of Proceeds.................................... Investment Program, Use of Proceeds and Trading
Policies.
5. Determination of Offering Price.................... Plan of Distribution.
6. Dilution........................................... Not Applicable.
7. Selling Security Holders........................... Not Applicable.
8. Plan of Distribution............................... Plan of Distribution.
9. Description of Securities to be Registered......... The Limited Partnership Agreement.
10. Interests of Named Experts and Counsel............. Not Applicable.
11. Information with Respect to the Registrant
(a) Description of Business........................ Summary of the Prospectus; Risk Factors; In-
vestment Program, Use of Proceeds and Trading
Policies; General Description of Trading
Approaches; The Trading Advisor; The Futures,
Options and Forward Markets; The Limited
Partnership Agreement.
(b) Description of Property........................ Not Applicable.
(c) Legal Proceedings.............................. Certain Litigation; The Trading Advisor.
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters............................ Risk Factors.
(e) Financial Statements........................... Independent Auditors' Reports.
(f) Selected Financial Data........................ Selected Financial Data.
(g) Supplementary Financial Information............ Selected Financial Data.
(h) Management's Discussion and Analysis
of Financial Condition and Results of
Operations..................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure...................................... Not Applicable.
(j) Directors and Executive Officers............... The General Partner.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. REGISTRATION ITEM LOCATION IN PROSPECTUS
- --------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
(k) Executive Compensation......................... Summary of the Prospectus; Conflicts of Interest;
Fiduciary Responsibility; Description of Charges
to the Partnership; Risk Factors; The Trading
Advisor; The General Partner; The Commodity
Broker.
(l) Security Ownership of Certain Beneficial
Owners and Management........................... Capitalization; The General Partner; The Trading
Advisor; Independent Auditors' Reports.
(m) Certain Relationships and Related
Transactions.................................. Summary of the Prospectus; Conflicts of Interest;
Fiduciary Responsibility; Description of Charges
to the Partnership; Risk Factors; The Trading
Advisor; The General Partner; The Commodity
Broker.
12. Disclosure of Commission Position on In-
demnification for Securities Act Liabilities...... Fiduciary Responsibility.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION; DATED MARCH 27, 1997
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
50,000 UNITS OF LIMITED PARTNERSHIP INTEREST
----------------
Dean Witter Portfolio Strategy Fund L.P. (the "Partnership") is a commodity
pool limited partnership formed under the laws of the State of Delaware which is
engaged primarily in speculative trading of futures and forward contracts,
options on futures contracts and on physical commodities, and other commodity
interests, including foreign currencies, financial instruments, precious and
industrial metals, energy products, and agriculturals, as more fully described
herein (hereinafter referred to collectively as "futures interests"). Demeter
Management Corporation, the general partner of the Partnership (the "General
Partner"), has retained John W. Henry & Company, Inc. (the "Trading Advisor"),
to engage in futures interests trading on behalf of the Partnership. The
Partnership commenced futures interests trading on February 1, 1991.
Units of limited partnership interest in the Partnership ("Units") are being
offered for sale at a price equal to 100% of the Net Asset Value per Unit (the
total assets of the Partnership less its total liabilities allocated to capital
accounts represented by Units divided by the aggregate number of Units
outstanding) as of the close of business on the last day of the month
immediately preceding the date of the Closing, as described below. Units will be
issued at a closing (the "Closing"), which is currently scheduled to be held as
of October 1, 1997; provided, however, that the General Partner may at its
discretion hold the Closing as of the first business day of any month during the
Offering Period (as defined herein). Units are being offered and sold by the
Partnership through Dean Witter Reynolds Inc. ("DWR") on a best efforts basis.
There is no minimum number of Units which must be sold for this offering to
close.
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK. THESE
SECURITIES ARE SUITABLE FOR INVESTMENT ONLY BY A PERSON WHO CAN AFFORD TO LOSE
HIS ENTIRE INVESTMENT. SEE "SUMMARY OF THE PROSPECTUS-- INVESTMENT REQUIREMENTS"
(PAGE 1), "RISK FACTORS" (PAGE 13), AND "CONFLICTS OF INTEREST" (PAGE 20).
An investment in the Partnership involves significant risks, including the
following:
-Futures interests trading is speculative and volatile. The
Partnership's trading has been volatile. Such volatility could
result in an investor losing all or a substantial part of his
investment.
-The Partnership is subject to substantial charges by the Trading
Advisor and DWR. The Partnership must earn estimated annual net
trading profits of 5.71% of its average annual Net Assets (after
taking into account estimated interest income based upon current
rates of 5%) in order to avoid depletion or exhaustion of its
assets. Investors should see "Break Even Analysis" on page 39 for
the effect of redemption charges which are not included in the
above figures.
-No secondary market for Units exists. Units may be redeemed
monthly only after the end of the sixth month following the
closing at which an investor first became a Limited Partner. A
Unit redeemed at or prior to the end of the twenty-fourth month
following the closing at which the Unit was issued may be subject
to redemption charges. Certain market conditions may result in
possible delays in, or inability to pay, redemptions.
-Conflicts of interest between and among the Trading Advisor, the
General Partner, DWR, their affiliates and the Partnership may
adversely affect the trading performance of the Partnership. See
"Conflicts of Interest."
-The Partnership's profitability is largely dependent on the
performance of the Trading Advisor.
-While the General Partner does not intend to make any
distributions, profits earned in any year will result in taxable
income to investors.
<TABLE>
<CAPTION>
INITIAL PRICE
TO SELLING PROCEEDS TO THE
PUBLIC COMMISSIONS PARTNERSHIP
<S> <C> <C> <C>
Per Unit (1) (1) (2)(3)
Total Maximum (1) (1) (2)(3)
</TABLE>
COVER PAGE CONTINUED AND NOTES TO THE ABOVE TABLE ON PAGE (i).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
DEAN WITTER REYNOLDS INC.
- --------------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
The minimum investment for most subscribers is $5,000, or $2,000 in the case
of an Individual Retirement Account.
Subject to redemption charges during the 24 months following the issuance of
a Unit and certain other restrictions, Units may be redeemed as of the end of
any month. See "Redemptions."
The Partnership is not a mutual fund or any other type of investment company
within the meaning of the Investment Company Act of 1940, as amended, and is not
subject to regulation thereunder.
NOTES TO TABLE ON FRONT COVER PAGE
(1) Units are offered for sale at the Closing at a price per Unit equal to 100%
of the Net Asset Value of a Unit as of the close of business on the last day
of the month immediately preceding the date of the Closing. No underwriting
compensation or selling commissions will be paid out of the proceeds of this
offering. However, except as provided below, employees of DWR will receive
from DWR (payable solely from its own funds) a gross sales credit equal to
3% of the Net Asset Value per Unit as of the Closing for each Unit sold by
them and issued at the Closing. Commencing with the eighth month following
the Closing and continuing until the Partnership terminates, an employee of
DWR who sold such Unit and who is properly registered with the Commodity
Futures Trading Commission ("CFTC") and has passed the Series 3 or Series 31
examination or was "grandfathered" as an associated person qualified to do
commodity brokerage also will receive from DWR (payable solely from its own
funds) up to 35% of the brokerage commissions that are attributable to
outstanding Units sold by them and received by DWR as commodity broker for
the Partnership. During the period February 1991 through December 1996, such
compensation resulted in average annual payments of $17 per Unit. Such
continuing compensation is to be paid in recognition of the employee's
continuing services to the Limited Partners. For a description of all such
continuing services, see "Plan of Distribution." The Selling Agreement among
DWR, the General Partner, the Trading Advisor and the Partnership provides
that such compensation may only be paid by DWR as long as such services are
provided. Such continuing compensation paid by DWR may be deemed to be
underwriting compensation. No part of such compensation shall be paid by the
Partnership and, accordingly, Net Assets will not be reduced as a result of
such compensation. No person will receive the continuing compensation
described above who is not a DWR employee at the time of receipt of payment.
DWR will not pay to its employees the 3% gross sales credit described above
with respect to Units purchased by a subscriber with the proceeds of a
redemption on or after June 30, 1996 of all or a portion of such
subscriber's interest in any other commodity pool for which the General
Partner serves as the general partner and commodity pool operator. Such
employees will receive the continuing payments with respect to brokerage
commissions which are charged to the Partnership which are comparable to the
payments which were received by such employees with respect to such other
commodity pools.
DWR will be indemnified by the Partnership against certain civil
liabilities.
(2) Units are offered for sale from the date hereof, unless sooner terminated,
to the date of the Closing, which shall be held during the period from the
date of this Prospectus through October 10, 1997 (the "Offering Period").
The General Partner shall also have the discretion to terminate the offering
of Units at any time during the Offering Period. Subscription amounts
received during the Offering Period and not immediately rejected by the
General Partner will be held in escrow at The Chase Manhattan Bank, New
York, New York (the "Escrow Agent") until the Closing or until earlier
rejection by the General Partner. The funds will be invested in the Escrow
Agent's interest-bearing bank money market account. Interest earned on
subscriptions accepted or rejected by the General Partner will be credited
to the subscribers' customer accounts with DWR. The General Partner will
determine to accept or reject a subscription generally within 10 days of the
receipt of a complete and executed Subscription and Exchange Agreement and
Power of Attorney. See "Plan of Distribution."
Any subscription received by DWR during the last five business days of the
month prior to the Closing may be rejected by the General Partner. See "Plan
of Distribution."
(3) DWR paid approximately $900,000 in connection with the organization of the
Partnership and the initial offering of Units. Such costs included legal,
accounting, and auditing fees, printing costs, filing fees, escrow fees,
marketing costs, and other related fees and expenses incurred in connection
with the initial offering of Units. The Partnership has not and will not
reimburse DWR for any portion of the costs so incurred or any offering
expense (estimated to be $900,000 in the aggregate) incurred in connection
with this additional offering of Units, and while DWR may recoup such costs
from brokerage commissions paid by the Partnership, the Partnership will not
be liable for any such costs at any time. Investments by subscribers are not
subject to any upfront fees, commissions or expenses and therefore, 100% of
the proceeds of the offering are available for investment in the
Partnership. The number of Units sold will have no effect on the Net Asset
Value per Unit.
i
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED ON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER BY ANY PERSON WITHIN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ITS ISSUE.
The Partnership must furnish all Limited Partners annual and monthly reports
complying with CFTC requirements. The annual reports will contain audited, and
the monthly reports unaudited, financial information. The audited financial
statements will be examined and reported upon by independent certified public
accountants.
UNTIL 40 DAYS FROM THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). These reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
SEC at the SEC's office at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at its regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices described above, at prescribed rates. The
SEC maintains a Web site containing reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. The address of such site is: http://www.sec.gov.
The Partnership has filed with the SEC, in Washington, D.C., a Registration
Statement on Form S-1 under the Securities Act of 1933 with respect to the Units
offered hereby. This Prospectus does not contain all the information included in
the Registration Statement, certain items of which are omitted in accordance
with the Rules and Regulations of the SEC. For further information about the
Partnership and the Units offered hereby, reference is made to the Registration
Statement and the exhibits thereto.
ii
<PAGE>
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS,
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL BEGINNING AT PAGE
34 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 39.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT BEGINNING AT PAGE 13.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES
OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES,
INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO
REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS
PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO
COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN
NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk Disclosure Statement..................... iii
Summary of the Prospectus..................... 1
Investment Requirements..................... 1
Additional Information...................... 2
The Investment Objective.................... 2
The Partnership............................. 2
The General Partner......................... 3
The Commodity Broker........................ 3
The Trading Advisor......................... 4
Risk Factors................................ 4
Conflicts of Interest....................... 6
Description of Charges to the Partnership... 6
Redemptions................................. 8
Distributions............................... 9
Transferability of Units.................... 9
The Offering................................ 9
Interest on Partnership Assets.............. 11
Use of Proceeds............................. 11
Tax Considerations.......................... 11
Risk Factors.................................. 13
Risks Relating to Futures Interests Trading
and the Futures Interests Markets.......... 13
Risks Relating to the Partnership and the
Offering of Units.......................... 16
Risks Relating to the Trading Advisor....... 17
Taxation and Regulatory Risks............... 19
Conflicts of Interest......................... 20
Relationship of the General Partner to the
Commodity Broker........................... 20
Accounts of Affiliates of the General
Partner, the Trading Advisor and DWR....... 21
Management of Other Accounts by the Trading
Advisor.................................... 22
Customer Agreement with DWR................. 22
Other Commodity Pools....................... 22
Fiduciary Responsibility...................... 22
Performance Record of the Partnership......... 24
Selected Financial Data....................... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Description of Charges to the Partnership..... 34
1. The Trading Advisor...................... 35
2. Dean Witter Reynolds Inc................. 37
3. Other.................................... 38
4. Break Even Analysis...................... 39
Investment Program, Use of Proceeds and
Trading Policies............................. 41
Trading Policies............................ 42
Capitalization................................ 44
The General Partner........................... 44
Directors and Officers of the General
Partner.................................... 45
The Futures, Options and Forward Markets...... 47
Futures Contracts........................... 47
Forward Contracts........................... 47
Options on Futures.......................... 47
Hedgers and Speculators..................... 48
Commodity Exchanges......................... 48
Speculative Position Limits................. 49
Daily Limits................................ 49
Regulations................................. 50
Margins..................................... 51
General Description of Trading Approaches..... 52
Introduction................................ 52
Systematic and Discretionary................ 52
Technical and Fundamental Analysis.......... 52
Trend-Following............................. 53
Risk Control Techniques..................... 53
The Trading Advisor........................... 54
Introduction................................ 54
<CAPTION>
PAGE
<S> <C>
John W. Henry & Company, Inc................ 54
Legal and Ethical Concerns.................. 59
The JWH Investment Philosophy............... 60
A Disciplined Investment Process............ 61
Program Modifications....................... 61
Leverage.................................... 62
Addition, Redemption and Reallocation of
Capital for Commodity Pool or Fund
Accounts.................................. 62
Physical or Cash Commodities................ 62
Description of JWH's Trading Programs....... 63
The Commodity Broker.......................... 73
Description of the Commodity Broker......... 74
Brokerage Arrangements...................... 74
Certain Litigation............................ 74
The Management Agreement...................... 75
Term........................................ 75
Liability and Indemnification............... 75
Obligations to the Partnership.............. 75
Redemptions................................... 76
The Limited Partnership Agreement............. 78
Nature of the Partnership................... 78
Management of Partnership Affairs........... 78
Additional Offerings........................ 79
Sharing of Profits and Losses............... 79
Restrictions on Transfers or Assignments.... 79
Amendments; Meetings........................ 80
Indemnification............................. 80
Reports to Limited Partners................. 80
Plan of Distribution.......................... 82
Subscription Procedure........................ 84
Purchases by Employee Benefit Plans--ERISA
Considerations............................... 85
Material Federal Income Tax Considerations.... 87
Introduction................................ 87
Partnership Status.......................... 87
Partnership Taxation........................ 87
Cash Distributions and Redemptions.......... 88
Gain or Loss on Trading Activity............ 88
Taxation of Limited Partners................ 91
Tax Audits.................................. 94
State and Local Income Tax Aspects............ 95
Potential Advantages.......................... 95
Legal Matters................................. 100
Experts....................................... 100
Additional Information........................ 100
Glossary...................................... 101
Certain Terms and Definitions............... 101
Blue Sky Glossary........................... 102
Dean Witter Portfolio Strategy Fund L.P.
Independent Auditors' Report................ F-1
Statements of Financial Condition........... F-2
Statements of Operations.................... F-3
Statements of Changes in Partners'
Capital.................................... F-4
Statements of Cash Flows.................... F-5
Notes to Financial Statements............... F-6
Demeter Management Corporation
Independent Auditors' Report................ F-11
Statements of Financial Condition........... F-12
Notes to Statements of Financial Condition
(certain information relating to the
financial condition of Demeter Management
Corporation's parent is contained in "The
General Partner").......................... F-13
Exhibit A--Amended and Restated Limited
Partnership Agreement........................ A-1
Annex 1--Request for Redemption............... A-22
Exhibit B--Subscription and Exchange Agreement
and Power of Attorney........................ B-1
</TABLE>
iv
<PAGE>
SUMMARY OF THE PROSPECTUS
THE DATE OF THIS PROSPECTUS IS , 1997.
The following is a summary of this Prospectus. This Prospectus contains more
detailed information under the captions referred to below, and this summary is
qualified in its entirety by the information appearing elsewhere herein.
INVESTMENT REQUIREMENTS
The minimum investment for most subscribers is $5,000, except that the
minimum investment is: (a) $2,000 in the case of an Individual Retirement
Account ("IRA"); or (b) for subscribers who redeem, on or after June 30, 1996,
units of limited partnership interest in any other commodity pool for which the
General Partner serves as the general partner and commodity pool operator and
use the proceeds of such redemption (less any applicable redemption charges) to
purchase Units (such purchases are hereinafter referred to as "Exchanges"), the
lesser of (i) $5,000 ($2,000 in the case of an IRA), (ii) the proceeds from the
redemption of five units (two units in the case of an IRA) from commodity pools
other than the Spectrum Series (iii) the proceeds from the redemption of 500
units (200 units in the case of an IRA) from one, or any combination, of the
Spectrum Series of commodity pools, or (iv) the proceeds from the redemption of
all of a subscriber's units of limited partnership interest in any other
commodity pool for which the General Partner serves as general partner and
commodity pool operator. Existing Limited Partners who desire to make an
additional investment in the Partnership may subscribe for Units at the Closing
with a minimum investment of $1,000.
Subscribers should be aware that there are minimum net worth and/or annual
income suitability standards which must be met in order to subscribe for Units.
Each subscriber must represent and warrant in a Subscription and Exchange
Agreement and Power of Attorney that such subscriber has received this
Prospectus and that such subscriber meets the applicable State minimum financial
suitability standard set forth in the Subscription and Exchange Agreement and
Power of Attorney (which may require a greater minimum investment), and may be
required to provide additional information regarding the subscriber's background
and investment history. Dean Witter Reynolds Inc. ("DWR") and its account
executives have a duty to determine that this is a suitable investment for the
subscriber.
Unless otherwise specified in the Subscription and Exchange Agreement and
Power of Attorney under "State Suitability Requirements," a subscriber must have
either: (a) a net worth of at least $75,000 (exclusive of home, furnishings, and
automobiles), or (b) a net worth of at least $30,000 (exclusive of home,
furnishings, and automobiles) and an annual income of at least $30,000. Certain
jurisdictions impose more restrictive suitability and/or minimum investment
requirements than those set forth above, including requirements for a higher net
worth, a higher annual income, or both. A list of such jurisdictions and the
restrictions imposed is included in the Subscription and Exchange Agreement and
Power of Attorney under the heading "State Suitability Requirements." A specimen
form of the Subscription and Exchange Agreement and Power of Attorney is annexed
hereto as Exhibit B. Separate execution copies of the Subscription and Exchange
Agreement and Power of Attorney either accompany this Prospectus or may be
obtained, after delivery of this Prospectus, from a local DWR branch office.
Subject to certain limited revocation rights (see "Subscription Procedure"),
all subscriptions for Units are irrevocable by subscribers, and the General
Partner may, in its sole discretion, reject any subscription in whole or in
part. There are significant restrictions on the ability of a Limited Partner to
redeem Units, and although the Partnership's Amended and Restated Limited
Partnership Agreement (the "Limited Partnership Agreement") permits the transfer
of Units subject to certain conditions, there is no public market for the Units
and none is likely to develop. Therefore, a purchaser of Units must be able to
bear the economic risks of an investment in the Partnership for a significant
period of time. See "The Limited Partnership Agreement--Restrictions on
Transfers or Assignments" and "Redemptions."
1
<PAGE>
ADDITIONAL INFORMATION
In addition to this Prospectus, a sales brochure and introductory letters
prepared by DWR may be delivered with this Prospectus or may be obtained from a
DWR account executive or by writing to Dean Witter Reynolds Inc., Two World
Trade Center, 62nd Floor, New York, New York 10048.
THE INVESTMENT OBJECTIVE
The objective of Dean Witter Portfolio Strategy Fund L.P. (the
"Partnership") is to generate substantial appreciation of its assets over time
through speculative trading. The entire proceeds of the sale of the Units will
be deposited in the Partnership's accounts with DWR to be used as margin for the
Partnership's trading activities and may be subject to depletion if the
Partnership experiences losses from its trading activities.
The Partnership will trade futures contracts and forward contracts, and
options on futures contracts and on physical commodities, and other futures
interests pursuant to the trading approaches utilized by the Trading Advisor.
The Partnership's portfolio will normally include contracts for diverse futures
interests, including industrial items, metals, agriculturals, currencies,
financial instruments, and stock, financial, and economic indexes. The Trading
Advisor employs a variety of trading programs in an effort to achieve this
objective, and may from time to time, in its discretion, modify its trading
programs and add to and delete from the Partnership's portfolio additional
futures interests. The General Partner, in consultation with the Trading
Advisor, may reallocate the Partnership's funds among the Trading Advisor's
various programs. See "Investment Program, Use of Proceeds and Trading Policies
- -- Trading Policies" and "The Trading Advisor."
Based upon the fees and expenses of the Partnership, the Partnership will be
required to earn estimated annual net trading profits of 5.71% of its average
annual Net Assets (after taking into account estimated interest income based
upon current rates of 5%) in order to avoid depletion or exhaustion of its
assets. See "Description of Charges to the Partnership." Investors should see
"Break Even Analysis" on page 39 for the effect of redemption charges which are
not included in the above figures. By reason of the foregoing, investors should
consider an investment in the Partnership as a long-term investment.
Distributions of profits, if any, will be made at the sole discretion of the
General Partner. It is currently the intention of the General Partner not to
make distributions. See "Distributions" in this section.
THE PARTNERSHIP
The Partnership was organized as a limited partnership on August 28, 1990
under the Delaware Revised Uniform Limited Partnership Act (the "Partnership
Act"). The offices of the Partnership are located at Two World Trade Center,
62nd Floor, New York, New York 10048, telephone (212) 392-8899.
The Partnership was initially capitalized through the contributions of
$1,000 by the General Partner and $1,000 by an initial limited partner. The
initial limited partner ceased to be a Limited Partner of the Partnership at the
Partnership's initial closing (the "Initial Closing"), which was held on January
31, 1991.
The Partnership initially offered 150,000 Units through a public offering,
in which Units were sold for $1,040 at the Initial Closing (the "Initial
Offering"), including a $40 (4%) selling commission, which commission was
subject to reduction based on the number of Units that a subscriber purchased.
During the Initial Offering, the Partnership accepted $99,480,090 (net of
commissions) and issued 99,480.090 Units at an initial Net Asset Value per Unit
of $1,000. In accordance with the Limited Partnership Agreement, the General
Partner contributed $1,011,000 (1,011.000 General Partnership Units) to the
Partnership.
The Partnership was initially structured as a "guaranteed" fund which
ensured investors in the initial offering who redeemed their Units on July 31,
1996, the return of their initial principal of $1,000 per Unit. On July 31,
1996, the Net Asset Value per Unit was $1,720.95, which exceeded the guaranteed
2
<PAGE>
amount, and the letter of credit which implemented the principal protection
feature expired. In connection with the expiration of the principal protection
feature, the General Partner changed the Partnership's name from Dean Witter
Principal Secured Futures Fund L.P. to Dean Witter Portfolio Strategy Fund L.P.,
and has determined to have John W. Henry & Company, Inc. (the "Trading Advisor")
continue to trade the Partnership's Net Assets in a non-guaranteed format. In
connection with these events, the allocation of the Partnership's Net Assets
among the Trading Advisor's trading programs has changed and may change in the
future. See "The Trading Advisor." Concurrent with the expiration of the letter
of credit on July 31, 1996, both the letter of credit fee of 1% of new
appreciation paid by the Partnership and the reduction of interest income of
1.125% per annum for the letter of credit fee paid by DWR prior to July 31,
1996, have been eliminated.
The Partnership will terminate upon the first to occur of the following: (a)
December 31, 2025; (b) the withdrawal, insolvency, bankruptcy, dissolution,
liquidation, or termination of the General Partner, unless a new general partner
has been elected and the business of the Partnership is continued by the
successor general partner; (c) an election to dissolve the Partnership at a
specified time by Limited Partners owning more than 50% of the Units then owned
by Limited Partners; (d) a decline in the Net Asset Value of a Unit as of the
close of business (as determined by the General Partner) on any day to less than
$250; (e) a decline in the Partnership's Net Assets as of the close of business
(as determined by the General Partner) on any day to $250,000 or less; (f) a
determination by the General Partner that the Partnership's Net Assets in
relation to the operating expenses of the Partnership make it unreasonable or
imprudent to continue the business of the Partnership; (g) the occurrence of any
event which shall make it unlawful for the existence of the Partnership to be
continued; or (h) a determination by the General Partner to terminate the
Partnership following a Special Redemption Date. See "The Limited Partnership
Agreement--Termination of the Partnership."
The Partnership commenced trading operations on February 1, 1991. The actual
performance record of the Partnership from the commencement of trading through
December 31, 1996 is set forth under "Performance Record of the Partnership."
THE GENERAL PARTNER
The general partner and commodity pool operator of the Partnership is
Demeter Management Corporation, a Delaware corporation (the "General Partner").
The General Partner and Dean Witter Reynolds Inc. ("DWR"), the selling agent and
commodity broker for the Partnership, are each wholly-owned subsidiaries of Dean
Witter, Discover & Co. ("DWD"). On February 5, 1997, DWD and Morgan Stanley
Group Inc. ("Morgan Stanley") announced a definitive agreement to merge, which
merger is expected to be completed in mid-1997, subject to customary closing
conditions, including certain regulatory approvals and the approval of
shareholders of both companies. See "Conflicts of Interest," "The General
Partner," and "The Commodity Broker." The Trading Advisor makes all trading
decisions in respect of the funds of the Partnership, except that the General
Partner may override the instructions of the Trading Advisor and make trading
decisions under certain circumstances. See "The Management Agreement." The
General Partner is or has been the general partner and commodity pool operator
of 28 commodity pools, five of which have terminated. The General Partner had,
in the aggregate, over $1 billion of net assets under management as of December
31, 1996.
THE COMMODITY BROKER
The principal commodity broker for the Partnership is Dean Witter Reynolds
Inc. (in such capacity, the "Commodity Broker"). The Commodity Broker is a
wholly-owned subsidiary of DWD and currently acts as commodity broker for all of
the commodity pools for which the General Partner acts as general partner and
commodity pool operator, as well as for other commodity pools. The General
Partner believes that the commissions and charges payable to DWR by the
Partnership are competitive with those paid by other public commodity pools,
although they may be higher than those paid by certain other customers of DWR.
See "Conflicts of Interest," "Description of Charges to the Partnership-- 2.
Dean Witter Reynolds Inc.," and "The Commodity Broker."
3
<PAGE>
THE TRADING ADVISOR
The trading advisor for the Partnership is John W. Henry & Company, Inc.
("JWH" or the "Trading Advisor"). Subject to certain limitations, the Trading
Advisor has authority and responsibility for directing the investment and
reinvestment in futures interests of the Partnership's Net Assets. See "The
Management Agreement." Since the primary purpose of the Partnership is to
achieve appreciation of its assets through speculative trading in futures
interests, the Partnership's ability to succeed in that endeavor depends on the
success of the trading programs of the Trading Advisor.
The assets of the Partnership are traded pursuant to technical trading
programs developed by the Trading Advisor. Technical programs formulate trading
decisions on an analysis of prior historical patterns of price movements and
other market indicators such as volume and market behavior. See "The Trading
Advisor--Description of JWH's Trading Programs." See also "The Futures, Options
and Forward Markets."
The General Partner, in consultation with the Trading Advisor, may
reallocate the Partnership's funds among the Trading Advisor's various trading
programs.
The Trading Advisor is not affiliated with the General Partner or DWR. See
"The Trading Advisor" and "The Management Agreement."
RISK FACTORS
As a general matter, an investment in the Partnership is speculative and
involves substantial risk, including the risk of loss of a Limited Partner's
entire investment. Risks of an investment in the Partnership include:
RISKS RELATING TO FUTURES INTERESTS TRADING
-Futures interests trading is speculative and volatile. The
Partnership's trading has been volatile. Such volatility could
result in an investor losing all or a substantial part of his
investment.
-Futures interests trading is highly leveraged and relatively
small price movements can result in significant losses to the
Partnership.
-Futures interests trading may be illiquid and in certain
situations prevent the Partnership from limiting its loss on an
unfavorable position.
-Trading in forward contracts may subject the Partnership to
losses if a counterparty is unable to meet its obligations.
-Trading on foreign exchanges may result in the Partnership having
less regulatory protection available. In addition, the
Partnership may suffer losses due to exchange rate changes.
-Trading in futures options can be extremely expensive if market
volatility is incorrectly predicted.
-The Partnership has credit risk because DWR acts as the futures
commission merchant or the sole counterparty with respect to most
of the Partnership's assets.
-Speculative position limits may result in the Partnership having
to liquidate profitable positions.
RISKS RELATING TO THE PARTNERSHIP AND OFFERING OF UNITS
-Past results are not necessarily indicative of future results.
-The Partnership incurs substantial charges regardless of whether
it realizes profits. The Partnership must earn estimated annual
net trading profits of 5.71% of its average annual Net Assets
(after taking into account estimated interest income
4
<PAGE>
based upon current rates of 5%) in order to avoid depletion or
exhaustion of its assets. Investors should see "Break Even
Analysis" on page 39 for the effect of redemption charges which
are not included in the above figures. The Partnership had net
trading losses in 1994 and 1992. See "Performance Record of the
Partnership."
-The liquidity of the Units is restricted in that there is an
absence of a secondary market, the ability to assign or transfer
is restricted, redemptions are limited to monthly after the first
six months, and redeemed Units may be subject to redemption
charges.
-Significant actual and potential conflicts of interest exist
among the General Partner, the Trading Advisor and the Commodity
Broker.
-Limited Partners do not participate in the management of the
Partnership or in the conduct of its business.
-Limited Partners must rely on the General Partner's selection of
a trading advisor.
RISKS RELATED TO THE TRADING ADVISOR
-The Partnership will not be profitable unless the Trading Advisor
is successful with its trading programs.
-Market factors may adversely affect or require modifications to
the Trading Advisor's programs.
-The Management Agreement may not be renewed, may be renewed on
less favorable terms to the Partnership, or may be terminated by
the Trading Advisor such that the Trading Advisor will no longer
be available to the Partnership.
-Substantial increase in assets allocated to the Trading Advisor
may adversely affect its performance.
-The Trading Advisor's primarily technical trading programs have
inherent limitations.
-Increases in the use of technical trading programs in the futures
interests markets could adversely alter trading patterns or
affect execution of trades by the Partnership.
TAXATION RISKS
-If the tax laws and/or certain facts and circumstances change,
the Partnership may be taxed as a corporation.
-Profits earned during any year will result in taxable income to
an investor even though the General Partner does not intend to
make distributions.
-Deductibility of certain of the Partnership's expenses may be
limited.
-The Partnership's tax return may be audited by the Internal
Revenue Service.
Only the General Partner will be liable for Partnership obligations
(including margin calls) to the extent that the Partnership's assets, including
amounts contributed by the Limited Partners and amounts paid to Limited Partners
upon redemptions, distributions or otherwise (together with interest thereon)
are insufficient to meet those obligations. See "Risk Disclosure Statement,"
"Risk Factors," "Conflicts of Interest," "Description of Charges to the
Partnership," and "The Limited Partnership Agreement--Nature of the
Partnership."
5
<PAGE>
CONFLICTS OF INTEREST
Significant actual and potential conflicts of interest exist in the
structure and operation of the Partnership, principally arising from the
affiliation between the General Partner and DWR, and the trading of other
accounts of, or managed by, the General Partner, DWR, the Trading Advisor and
their affiliates. Such conflicts include the fact that the brokerage
arrangements were not agreed upon in arm's-length negotiations due to the
affiliation between the General Partner and DWR, and that the General Partner
and DWR may have conflicting demands in respect of other commodity pools; that
DWR employees selling Units will receive a portion of the brokerage commissions
paid to DWR by the Partnership, and thus have a conflict in advising investors
whether and when to redeem Units; that the Trading Advisor and DWR, and
individuals and entities associated with the General Partner, the Trading
Advisor and DWR, may trade futures interests for their own accounts, which
trading may compete with the Partnership for positions; that trading by the
Trading Advisor for its own account and for other customers could result in
application of position limits to restrict the Partnership's trading; that under
the customer agreement with DWR, DWR may close out positions and take certain
other actions with regard to the Partnership's accounts without the
Partnership's consent; and that other commodity pools managed by the General
Partner and the Trading Advisor may compete with the Partnership. See "Conflicts
of Interest," "The Trading Advisor" "The General Partner," and "The Commodity
Broker."
DESCRIPTION OF CHARGES TO THE PARTNERSHIP
The Partnership is subject to substantial charges which are summarized below
and described in detail under "Description of Charges to the Partnership." See
also "Risk Factors--Risks Relating to the Partnership and the Offering of
Units--Substantial Charges to the Partnership," "Investment Program, Use of
Proceeds and Trading Policies," "The Commodity Broker," and "The Management
Agreement."
<TABLE>
<CAPTION>
RECIPIENT FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
The Trading Advisor Monthly Management Fee. A flat rate of 1/3 of 1% of Net Assets as of
the last day of each month (a 4% annual
rate).
Quarterly Incentive Fee. 15% of the Trading Profits experienced as of
the end of each calendar quarter.
The Commodity Brokerage Commissions. Roundturn commissions (the total costs for
Broker both the opening and liquidating of a
futures interest) at 80% of DWR's
published non-member rates (which is equal
to an average of approximately $75), which
commissions (together with the transaction
fees and costs described below) are capped
at (i) 13/20 of 1% per month (a maximum
7.8% annual rate) of the Partnership's Net
Assets as of the last day of each month,
with such cap applied separately on a per
trading system basis; and (ii) 14%
annually of the Partnership's average
monthly Net Assets, aggregated with net
excess interest and compensating balance
benefits, as described below.
Transaction charges for providing forward Forward contract fees average $3-$6 per
trading facilities, the execution of roundturn trade, charges for execution of
forward contract transactions, the cash contract transactions
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
RECIPIENT FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------- -------------------------------------------- --------------------------------------------
execution of cash contract transactions relating to EFP transactions are ap-
relating to exchange of futures for proximately $2.50 per cash contract, and
physicals ("EFP") transactions, and the charges for the use of the institutional
use of DWR's institutional and overnight trading desk or overnight execution
execution facilities. facility are up to $3 per roundturn (the
amount of such charges is included in the
transaction fees described below under
"Other" and is subject to the caps
described therein).
<S> <C> <C>
Financial benefit to Commodity Broker from The aggregate of (i) brokerage commissions
interest earned on the Partnership's and transaction fees and costs payable by
assets in excess of the interest paid to the Partnership, as described above and
the Partnership and from compensating below, and (ii) net excess interest and
balance treatment in connection with its compensating balance benefits to DWR
designation of a bank or banks in which (after crediting the Partnership with
Partnership assets are deposited. interest) are capped at 14% annually of
the Partnership's average monthly Net
Assets as of the last day of each month
during a calendar year.
Other Administrative expenses (including legal, Ordinary administrative expenses, which have
accounting, and auditing expenses, and been equal to 0.15% of the Partnership's
expenses of printing and distributing average annual Net Assets since inception,
reports) and all extraordinary expenses of are capped at 0.25% per year of the
the Partnership. Partnership's average monthly Net Assets
as of the last day of each month.
Extraordinary expenses cannot be estimated
and are not subject to any cap.
All transaction fees and costs incurred in Transaction fees and costs, which have been
connection with the Partnership's futures equal to 0.31% of the Partnership's
interests trading activities (including average annual Net Assets since inception,
floor brokerage fees, exchange fees, are included in: (i) the cap on brokerage
clearinghouse fees, NFA fees, "give up" or commissions; and (ii) the cap on aggregate
transfer fees (fees charged by one brokerage commissions and net excess
clearing brokerage firm to transfer a interest and compensating balance
trading position to another clearing benefits, each as described above.
firm), and any costs associated with
taking delivery of futures interests).
</TABLE>
As long as redemption charges are imposed, as described under "Redemptions,"
the management fee, incentive fee and caps on brokerage commissions, transaction
fees and costs, ordinary administrative expenses, and net excess interest and
compensating balance benefits may not be increased. Thereafter, none of such
fees and caps may be increased unless Limited Partners are given prior notice
thereof and an opportunity to redeem their Units, subject to additional limits
described under "Description of Charges to the Partnership."
7
<PAGE>
Based on the annual fees and expenses of the Partnership described above,
the Partnership must earn estimated annual net trading profits (after taking
into account estimated interest income based upon current rates of 5%) of 5.71%
of its average annual Net Assets in order to avoid depletion or exhaustion of
its assets. In order for a Limited Partner to pay the redemption charge and
recoup its initial investment upon redemption after one year, the Partnership
must earn estimated annual net trading profits (after taking into account
estimated interest income based upon current rates of 5%) of 9.35% of its
average annual Net Assets. This assumes that the Trading Advisor's gross profits
equal expenses, such that no incentive fees are earned by the Trading Advisor.
For the actual fees and expenses paid by the Partnership during fiscal year
1996, see "Description of Charges to the Partnership."
REDEMPTIONS
Persons who have been Limited Partners for more than six months may redeem
all or part of their Units, regardless of when such Units were purchased, at any
month-end in the manner described herein. Such Units may be subject to
redemption charges as described herein. Persons who have been Limited Partners
for less than six months may first redeem Units effective as of the last day of
the sixth month following the Closing in the manner described herein. Such Units
may be subject to redemption charges as described herein.
Units redeemed on or prior to the last day of the twelfth month after such
Units were purchased will be subject to a redemption charge equal to 3% of the
Net Asset Value of a Unit on the date of such redemption. Units redeemed after
the last day of the twelfth month and on or prior to the last day of the
eighteenth month after which such Units were purchased will be subject to a
redemption charge equal to 2% of the Net Asset Value of a Unit on the date of
such redemption. Units redeemed after the last day of the eighteenth month and
on or prior to the last day of the twenty-fourth month after which such Units
were purchased will be subject to a redemption charge equal to 1% of the Net
Asset Value of a Unit on the date of such redemption. Units redeemed after the
last day of the twenty-fourth month after which such Units were purchased will
not be subject to a redemption charge. The foregoing redemption charges will be
paid to DWR.
A limited partner in any of the other commodity pools for which the General
Partner serves as the general partner and commodity pool operator who redeemed
all or a portion of his interest in one of such other partnerships on or after
June 30, 1996 and purchases Units will not be subject to the redemption charges
or restrictions under the circumstances described herein. The number of Units,
expressed as a percentage of Units purchased, which are not subject to a
redemption charge is determined by dividing (a) the dollar amount received upon
redeeming an interest in such other partnership and used to purchase Units by
(b) the total investment in the Partnership. For example, a limited partner who
receives $5,000 upon redeeming all or a part of his interest in a commodity pool
operated by the General Partner and invests $10,000 in the Partnership will not
be subject to a redemption charge on 50% of his Units. An investor who purchases
$500,000 or more of Units will not be subject to the redemption charges
described above. Similarly, investors who are Limited Partners in the
Partnership immediately prior to the Closing will not be subject to the minimum
six-month holding period or the redemption charges, as described above, with
respect to Units purchased during the Offering Period.
A redemption may be made only in whole Units or in multiples of $1,000
(which may result in the redemption of fractional Units), unless a Limited
Partner's entire interest in the Partnership is redeemed. The right to obtain
redemption is contingent upon the Partnership having assets sufficient to
discharge its liabilities (including any amounts owed to affiliates of the
General Partner) as of the month-end, and the General Partner's timely receipt
of a properly executed Request for Redemption. The Partnership may be forced to
liquidate open positions to satisfy redemptions in the event it does not have
sufficient cash on hand. See "Redemptions."
8
<PAGE>
In addition to the information and reports described below under "The
Limited Partnership Agreement--Reports to Limited Partners," the General Partner
will provide Limited Partners with such other information and will comply with
any such procedures in connection with redemptions as in the future are
specifically required under Securities and Exchange Commission rules and
policies for commodity pools and similar investment vehicles.
DISTRIBUTIONS
Distributions of profits, if any, will be made at the sole discretion of the
General Partner (the General Partner has not previously made any distributions
of profits and it is currently the intention of the General Partner not to make
distributions). It is possible that no distributions will be made in some years
in which the Partnership has taxable profits, realized or unrealized. However, a
Limited Partner will nevertheless be required to account for his share of such
profits as income for federal tax purposes. Distributions may be made by credit
to a Limited Partner's customer account with DWR. See "Material Federal Income
Tax Considerations."
TRANSFERABILITY OF UNITS
The assignability or transferability of Units is limited by the Limited
Partnership Agreement and no assignee or transferee may become a substituted
Limited Partner without the consent of the General Partner, which consent the
General Partner may withhold in its sole discretion. See "The Limited
Partnership Agreement--Restrictions on Transfers or Assignments."
THE OFFERING
SECURITIES OFFERED
99,480.090 Units were sold to the public during the Partnership's Initial
Offering. The Partnership is currently offering up to 50,000 additional Units
for sale. No Units held by existing Limited Partners are being sold in this
offering. The General Partner, in its discretion, may register and sell
additional Units from time to time.
SUBSCRIPTION PROCEDURE
The minimum subscription for most subscribers is $5,000, except the minimum
subscription is: (a) $2,000 in the case of an IRA; or (b) for subscribers
effecting Exchanges, the lesser of (i) $5,000 ($2,000 in the case of IRAs), (ii)
the proceeds from the redemption of five units (two units in the case of IRAs)
from commodity pools other than the Spectrum Series, (iii) the proceeds from the
redemption of 500 units (200 units in the case of IRAs) from one, or any
combination, of the Spectrum Series of commodity pools, or (iv) the proceeds
from the redemption of all of a subscriber's units of limited partnership
interest in any other commodity pool for which the General Partner serves as
general partner and commodity pool operator. Existing Limited Partners who
desire to make an additional investment in the Partnership may subscribe for
Units at the Closing with a minimum investment of $1,000. Certain jurisdictions
may impose higher minimum investment requirements; see "State Suitability
Requirements" in the Subscription and Exchange Agreement and Power of Attorney.
No selling commissions will be charged on subscriptions. No offering expenses
will be charged to investors or the Partnership. See "Investment Requirements"
above, "Plan of Distribution," and "Subscription Procedure."
In order to purchase Units, a subscriber must complete, execute, and deliver
an execution copy of the Subscription and Exchange Agreement and Power of
Attorney to DWR. In the Subscription and Exchange Agreement and Power of
Attorney, a subscriber will (i) authorize the General Partner and DWR to
transfer the subscription amount from the subscriber's customer account with DWR
to the Dean Witter Portfolio Strategy Fund L.P. Escrow Account, or (ii) in the
case of an Exchange, authorize the General Partner to redeem all or a portion of
such subscriber's interest in another commodity pool for which the General
Partner serves as general partner and commodity pool operator (subject to the
terms of the applicable limited partnership agreement) and use the proceeds of
such redemption (less
9
<PAGE>
any applicable redemption charges) to purchase Units in the Partnership. A
subscriber must have the appropriate amount in his customer account with DWR on
the first business day following the date that his Subscription and Exchange
Agreement and Power of Attorney is received by DWR, and DWR will debit the
customer account and transfer such funds to the escrow account with the Escrow
Agent on that date. A subscriber may revoke his Subscription and Exchange
Agreement and Power of Attorney, and receive a full refund of the subscription
amount and any accrued interest thereon (or revoke the redemption of units in
the other commodity pool in the case of an Exchange), within five business days
after execution of such Agreement or no later than 3:00 p.m., New York City
time, on the date of the Closing, whichever comes first, by delivering written
notice to his DWR account executive.
PLAN OF DISTRIBUTION
The Units are being offered and sold by the Partnership through DWR.
Pursuant to a Selling Agreement among the Partnership, the General Partner, the
Trading Advisor and DWR, DWR will use its best efforts to sell Units, but DWR
has not made any commitment to offer and sell a specific amount of Units or to
purchase any Units. See "Plan of Distribution." The General Partner, in its sole
discretion, may reject a subscription in whole or in part at any time prior to
acceptance. Units are being offered to the public at a price per Unit equal to
100% of the Net Asset Value of a Unit as of the close of business on the last
day of the month immediately preceding the date of the Closing. Units will be
issued at the Closing, which is currently scheduled to held as of October 1,
1997; provided, however, that the General Partner may at its discretion hold the
Closing as of the first business day of any month during the Offering Period
(the period commencing the date of this Prospectus and ending October 10, 1997).
The General Partner shall have the discretion to terminate the offering of Units
at any time.
Funds with respect to a subscription received during the Offering Period and
not immediately rejected by the General Partner will be transferred to, and held
in escrow by, The Chase Manhattan Bank (the "Escrow Agent"), as described above,
until the General Partner either rejects such subscription prior to the Closing
or accepts such subscription at the Closing.
The General Partner, DWR, and the Trading Advisor, and their respective
principals, directors, officers, employees and affiliates, may subscribe for
Units. Subject to certain limited revocation rights (see "Subscription
Procedure"), all subscriptions for Units are irrevocable by subscribers.
Interest earned on subscriptions deposited into escrow and thereafter rejected
by the General Partner will be credited to the subscriber's customer account
with DWR.
Employees of DWR will receive compensation from DWR, and not from the
Partnership, out of the brokerage commissions paid to DWR by the Partnership.
Such continuing compensation is in consideration of certain additional services
provided to Limited Partners by such persons on a continuing basis and may be
deemed to be additional underwriting compensation. See "Plan of Distribution."
NO SELLING COMMISSIONS OR OFFERING EXPENSE CHARGE
In connection with the offering of Units pursuant to this Prospectus, no
selling commissions or offering expenses will be paid by Limited Partners or the
Partnership. DWR has previously paid all of the organizational costs and the
costs relating to the Initial Offering and will pay all of the costs incurred in
connection with this offering of Units, estimated to be approximately $900,000
in the aggregate. The Partnership will not reimburse DWR for any portion of the
costs so incurred, and will not be liable for any such costs at any time
(although DWR may recoup such costs from brokerage commissions paid by the
Partnership). Except as otherwise provided herein, employees of DWR will receive
from DWR (solely from its own funds) gross sales credit equal to 3% of the Net
Asset Value per Unit as of the Closing for each Unit sold by them and issued at
the Closing, and, if properly registered with the CFTC, also will receive from
DWR (solely from its own funds) up to 35% of the brokerage commissions that are
attributable to outstanding Units sold by them and received by DWR as commodity
broker for the Partnership each month, beginning with the eighth month after
which such Unit was issued, as described in Note (1) to the table on the front
cover page of this Prospectus. See "Plan of Distribution." DWR's employees may
have a conflict of interest in rendering advice to Limited Partners as to when
and whether to redeem Units because of their interest in receiving certain
continuing
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compensation for ongoing services rendered to holders of outstanding Units. The
compensation described above will be paid by DWR and will not be paid directly
by any Limited Partner or the Partnership.
SUITABILITY STANDARDS
Each investor (or person entitled to exercise control over assets of such
investor's account under an IRA or other employee benefit plan) must represent
and warrant in the Subscription and Exchange Agreement and Power of Attorney
that such investor and/or other person has received this Prospectus and
satisfies certain investment and/or suitability requirements described under
"--Investment Requirements" above.
INTEREST ON PARTNERSHIP ASSETS
Once the Partnership's assets are deposited with DWR, they will be held in
customer segregated funds accounts established by DWR. Effective on the day of
the Closing, DWR will credit the Partnership at month-end with interest income
as if 80% of the Partnership's average daily Net Assets for the month were
invested at a prevailing rate on U.S. Treasury Bills. For purposes of such
interest payments, Net Assets do not include monies due the Partnership 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
Partnership's assets held by DWR shall be used as margin solely for the
Partnership's trading. The Partnership's funds will be invested together with
other customer segregated funds or will be held in non-interest-bearing bank
accounts. In either case, the Partnership will be credited with interest at the
rate earned by DWR on its U.S. Treasury Bill investments with customer
segregated funds (as if 80% of its assets were invested in U.S. Treasury Bills);
DWR will retain any interest earned in excess of the interest paid to the
Partnership. To the extent that the assets of the Partnership are held in
non-interest-bearing bank accounts, DWR or its affiliates would benefit from
compensating balance treatment in connection with the designation of a bank or
banks in which the Partnership's assets are deposited (I.E., DWR or its
affiliates will receive favorable loan rates from such bank or banks by reason
of such deposits). It is not possible to quantify compensating balance benefits
at present; however, while it is anticipated that such benefits will exceed the
interest required to be credited to the Partnership, it is estimated that they
should not exceed 4% of the Partnership's average annual Net Assets after such
credits. To the extent such benefits to DWR or its affiliates exceed the
interest DWR is obligated to credit to the Partnership, they will not be shared
with the Partnership. Notwithstanding the foregoing, the aggregate of (i)
brokerage commissions and transaction fees and costs payable by the Partnership,
and (ii) the net excess interest and compensating balance benefits to DWR or its
affiliates (after crediting the Partnership with interest as described above)
shall not exceed 14% annually of the Partnership's average monthly Net Assets as
of the last day of each month during each calendar year. See "Investment
Program, Use of Proceeds and Trading Policies."
USE OF PROCEEDS
The entire proceeds of this offering, together with the General Partner's
capital contribution, will be deposited in the Partnership's accounts maintained
with DWR, and used for trading in futures interests. See "Investment Program,
Use of Proceeds and Trading Policies."
TAX CONSIDERATIONS
In the opinion of the General Partner's tax counsel, the Partnership will be
classified as a partnership for federal income tax purposes and not as an
association taxable as a corporation. Accordingly, the Partnership will not be
subject to federal income tax. Each Limited Partner in computing his federal
income tax liability for a taxable year will be required to take into account
his distributive share of all items of Partnership income, gain, loss, deduction
or credit for the taxable year of the Partnership ending within or with the
taxable year of the Limited Partner, regardless of whether such Limited Partner
has received any distributions from the Partnership. Such items of Partnership
gain or loss
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retain their character (E.G., capital or ordinary) when allocated to the Limited
Partners. Moreover, all such allocations will increase or decrease each Limited
Partner's tax basis in his Units. The allocation provisions are designed to
reconcile tax allocations to economic allocations; however, no assurance can be
given that the Internal Revenue Service will not challenge such allocation,
especially in light of recently issued final regulations. See "Material Federal
Income Tax Considerations."
Taxes payable by partners with respect to Partnership profits may exceed the
amount of Partnership distributions, if any, for a taxable year. Based upon the
current and contemplated activities of the Partnership, the General Partner has
been advised by its legal counsel that, in such counsel's opinion, expenses
incurred by the Partnership should not be subject to the limitations on the
deductibility of certain miscellaneous itemized expenses, except to the extent
that the Internal Revenue Service promulgates regulations that so provide.
Cash distributions by the Partnership and amounts received or deemed
received upon the partial or complete redemption of a Limited Partner's Units
that do not exceed the Limited Partner's aggregate basis in his Units are not
taxable. However, to the extent cash distributions and amounts received or
deemed received upon the partial redemption of a Limited Partner's Units exceed
the Limited Partner's aggregate tax basis in his Units, the excess will be
taxable to the Limited Partner as though it were gain on the sale of his Units.
Loss will generally be recognized on a redemption of Units only if a Limited
Partner redeems all of his Units in the Partnership and, following the complete
redemption, such Limited Partner has remaining tax basis in the Partnership. In
such case, the Limited Partner will recognize loss to the extent of the
remaining basis. Subject to an exception for certain types of Partnership
assets, such gain or loss (assuming that the Units constitute capital assets)
will be either short-term capital gain or loss or long-term capital gain or
loss, depending upon the length of time that Units were held prior to the
distribution or redemption. See "Material Federal Income Tax Considerations."
The General Partner has been advised that, in the opinion of its counsel, a
Limited Partner who is a nonresident alien individual, foreign corporation,
foreign partnership, foreign trust, or foreign estate (a "Foreign Limited
Partner") should not be deemed engaged in a trade or business in the United
States, and should not be subject to United States federal income tax, solely
because such Foreign Limited Partner is a limited partner in the Partnership. In
the event the Partnership's activities should in the future not fall within
certain safe harbors from U.S. trade or business status, there is a risk that
all of a Foreign Limited Partner's distributive share of income of the
Partnership would be treated as effectively connected with the conduct of a
trade or business in the United States. In that event, the Foreign Limited
Partner would be taxed at regular rates applicable to U.S. taxpayers and, if a
foreign corporation, could be subject to a 30% branch profits tax. See "Material
Federal Income Tax Considerations." As regards tax-exempt Limited Partners, see
"Purchases by Employee Benefit Plans--ERISA Considerations."
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RISK FACTORS
In addition to the Risk Disclosure Statement appearing at the beginning of
this Prospectus, prospective subscribers should consider the following risks
before subscribing for Units.
RISKS RELATING TO FUTURES INTERESTS TRADING AND THE FUTURES INTERESTS MARKETS
FUTURES INTERESTS TRADING IS SPECULATIVE AND VOLATILE. Futures interests
prices are highly volatile. Price movements of futures interests are influenced
by, among other things: changing supply and demand relationships; weather;
agricultural, trade, fiscal, monetary, and exchange control programs and
policies of governments; domestic and foreign political and economic events and
policies; and changes in interest rates. The Partnership's trading has been
volatile. See "Performance Record of the Partnership."
The Partnership is also subject to the risk of failure of any of the
exchanges on which it trades or of their clearinghouses, if any. In addition,
under certain circumstances, such as the inability of a customer of the
Commodity Broker or the Commodity Broker itself to satisfy substantial
deficiencies in such customer's account, the Partnership may be subject to a
risk of loss of its funds on deposit with such Commodity Broker. See "The
Futures, Options and Forward Markets."
FUTURES INTERESTS TRADING IS HIGHLY LEVERAGED. Because of the low margin
deposits normally required in futures interests trading (typically between 2%
and 15% of the value of the contract purchased or sold), an extremely high
degree of leverage is typical of a futures interests trading account. As a
result, a relatively small price movement in a futures interest may result in
immediate and substantial losses to the investor. The Partnership uses
substantial leverage which could, depending on performance, result in increased
gain or loss. See "Performance Record of the Partnership." For example, if at
the time of purchase 10% of the price of a contract is deposited as margin, a
10% decrease in the price of the contract would, if the contract is then closed
out, result in a total loss of the margin deposit before any deduction for
brokerage commissions. A decrease of more than 10% would result in a loss of
more than the total margin deposit. See "The Futures, Options and Forward
Markets-- Margins" and "The Limited Partnership Agreement--Nature of the
Partnership."
FUTURES INTERESTS TRADING MAY BE ILLIQUID. Most United States futures
exchanges limit fluctuations in certain futures interests prices during a single
day by regulations referred to as "daily price fluctuation limits" or "daily
limits." Pursuant to such regulations, during a single trading day no trades may
be executed at prices beyond the daily limits. Once the price of a particular
futures interest has increased or decreased by an amount equal to the daily
limit, positions in the futures interest can neither be taken nor liquidated
unless traders are willing to effect trades at or within the limit. Prices in
various futures interests have occasionally moved the daily limit for several
consecutive days with little or no trading. Similar occurrences could prevent
the Partnership from promptly liquidating unfavorable positions and subject it
to substantial losses. While daily limits may reduce or effectively eliminate
the liquidity of a particular market, they do not limit ultimate losses, and may
in fact substantially increase losses because they may prevent the liquidation
of unfavorable positions. There is no limitation on daily price moves in trading
currency forward contracts.
In addition, the Partnership may not be able to execute trades at favorable
prices if little trading in the futures interests involved is taking place.
Under some circumstances, the Partnership may be required to accept or make
delivery of the underlying commodity if the position cannot be liquidated prior
to its expiration date. See "Investment Program, Use of Proceeds and Trading
Policies--Trading Policies." It also is possible that an exchange or the CFTC
may suspend trading in a particular futures interest, order immediate
liquidation and settlement of a particular futures interest, or order that
trading in a particular futures interest be conducted for liquidation only.
Similarly, trading in options on a particular futures interest may become
restricted if trading in the underlying futures interest has become restricted.
During periods in October 1987, for example, trading in certain stock index
futures was too illiquid for markets to function efficiently and was at one
point actually suspended. See "The Futures, Options and Forward Markets." The
principals who deal in the forward contract markets are
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not required to continue to make markets in the forward contracts they trade.
There have been periods during which certain participants in forward markets
have refused to quote prices for forward contracts or have quoted prices with an
unusually wide spread between the price at which they are prepared to buy and
that at which they are prepared to sell.
SPECIAL RISKS ASSOCIATED WITH FORWARD TRADING. The Partnership trades in
forward contracts, primarily currency forward contracts. Based on the
anticipated allocation of the Partnership's assets among the Trading Advisor's
trading programs, forward contracts are expected to comprise up to 50% of the
Partnership's trading activities. A forward contract is a contractual obligation
to purchase or sell a specified quantity of a commodity at a specified date in
the future at a specified price and, therefore, is similar to a futures
contract. However, forward contracts are not traded on exchanges and, as a
consequence, investors in forward contracts are not afforded the regulatory
protections of such exchanges or the CFTC; rather, banks and dealers act as
principals in such markets. Neither the CFTC nor banking authorities regulate
trading in forward contracts on currencies, and foreign banks may not be
regulated by any United States governmental agency.
Generally, when the Trading Advisor instructs the Partnership to either sell
or buy a particular currency or other forward contract, DWR will do back-to-back
principal trades in order to carry out such instructions. DWR, as principal,
will arrange bank lines of credit and contract with a United States or foreign
bank or dealer to make or take future delivery of a specified quantity of
currency or other commodity at a negotiated price. DWR, again as principal, will
in turn contract with the Partnership to make or take future delivery of the
same specified quantity of currency or other commodity at the same price. DWR
will charge the Partnership a transaction fee for effecting a forward contract
transaction, but will not attempt to profit from any mark-up or spread on the
trade with the Partnership.
Because performance of forward contracts on currencies and other commodities
is not guaranteed by any exchange or clearinghouse, the Partnership is subject
to the risk of the inability or refusal to perform with respect to such
contracts on the part of the principals or agents with or through which the
Partnership trades. Currently the sole counterparty with whom the Partnership
trades is DWR. Any such failure or refusal, whether due to insolvency,
bankruptcy or other causes, could subject the Partnership to substantial losses.
The Partnership and DWR will trade forward contracts only with banks, brokers,
dealers and other financial institutions which the General Partner, in
conjunction with DWR, has determined to be creditworthy.
The CFTC has published for comment in the United States Federal Register a
statement concerning its jurisdiction over transactions in the foreign currency
markets, including transactions of the type which may be engaged in by the
Partnership. In the future, the CFTC might assert that forward contracts of the
type entered into by the Partnership constitute unauthorized futures contracts
subject to the CFTC's jurisdiction and attempt to prohibit the Partnership from
participating in transactions in such contracts. If the Partnership were
restricted in its ability to trade in the currency markets, the trading
strategies of the Trading Advisor could be materially affected.
SPECIAL RISKS ASSOCIATED WITH TRADING ON FOREIGN EXCHANGES. The Partnership
trades in futures, forward, and option contracts on exchanges located outside
the United States where CFTC regulations do not apply. Based on the anticipated
allocation of the Partnership's assets among the Trading Advisor's trading
programs, trading on foreign exchanges is expected to comprise up to 50% of the
Partnership's trading activities. Some foreign exchanges, in contrast to
domestic exchanges, are "principals' markets" in which performance with respect
to a contract is the responsibility only of the individual member with whom the
trader has entered into a contract and not of the exchange or clearinghouse, if
any. In the case of trading on foreign exchanges, the Partnership will be
subject to the risk of the inability of, or refusal by, the counterparty to
perform with respect to such contracts. Although DWR monitors the
creditworthiness of the foreign exchanges and clearing brokers with
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which it does business for clients, DWR does not have the capability to
precisely quantify the Partnership's exposure to risks inherent in its trading
activities on foreign exchanges, and as a result, the risk is not monitored by
DWR on an individual client basis (including the Partnership).
Trading on foreign exchanges may involve certain other risks not applicable
to trading on United States exchanges, such as the risks of exchange controls,
expropriation, burdensome or confiscatory taxation, moratoriums, or political or
diplomatic events. In addition, certain foreign markets are newly formed and may
lack personnel experienced in floor trading as well as in monitoring floor
trades for compliance with exchange rules. For an additional discussion of the
credit risks relating to trading on foreign exchanges, see "Risk Factors--Risks
Relating to Futures Interests and the Futures Interest Markets--Special Risks
Associated with Trading on Foreign Exchanges."
Furthermore, as the Partnership determines its Net Assets in United States
dollars, with respect to trading on foreign markets the Partnership is subject
to the risk of fluctuation in the exchange rate between the local currency and
dollars, and to the possibility of exchange controls. Unless the Partnership
hedges itself against fluctuations in exchange rates between the United States
dollar and the currencies in which trading is done on such foreign exchanges,
any profits which the Partnership might realize in such trading could be
eliminated as a result of adverse changes in exchange rates, and the Partnership
could even incur losses as a result of any such changes. See "The Futures,
Options and Forward Markets--Regulations."
SPECIAL RISKS ASSOCIATED WITH TRADING OF OPTIONS ON FUTURES. Options on
futures contracts and options on physical commodities are traded on United
States commodity exchanges and may be traded by the Partnership on certain
foreign exchanges. The Partnership is authorized to trade options and the
Trading Advisor has included options in its trading. Each such option is a
right, purchased for a certain price, to either buy or sell the underlying
futures contract or physical commodity during a certain period of time for a
fixed price. Such trading involves risks substantially similar to those involved
in trading futures contracts in that options are speculative and highly
leveraged. Specific market movements of the underlying futures contract or
physical commodity cannot be accurately predicted. The purchaser of an option is
subject to the risk of losing the entire purchase price of the option. The
writer of an option is subject to the risk of loss resulting from the difference
between the premium received for the option and the price of the commodity or
futures contract underlying the option which the writer must purchase or deliver
upon exercise of the option. See "The Futures, Options, and Forward
Markets--Options on Futures."
THE PARTNERSHIP HAS CREDIT RISK TO DWR. The Partnership has credit risk
because DWR acts as the futures commission merchant or the sole counterparty
with respect to most of the Partnership's assets. Exchange traded futures
contracts are marked to market on a daily basis, with variations in value
credited or charged to the Partnership's account on a daily basis. DWR, as
futures commission merchant for the Partnership's exchange traded futures
contracts, is required, pursuant to CFTC regulations, to segregate from its own
assets, and for the sole benefit of its commodity customers, all funds held by
DWR with respect to exchange traded futures contracts, including an amount equal
to the net unrealized gain on all open futures contracts. With respect to the
Partnership's off-exchange traded foreign currency forward contracts, there are
no daily settlements of variations in value. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Instruments."
POSSIBLE EFFECTS OF SPECULATIVE POSITION LIMITS. The CFTC and the United
States futures exchanges have established limits referred to as "speculative
position limits" or "position limits" on the maximum net long or net short
futures or options contract position which any person or group of persons may
own, hold, or control in particular futures or options contract.
All futures and option accounts owned, controlled or managed by the Trading
Advisor and its principals will be combined for position limit purposes, to the
extent they may be applicable. In this connection, the Management Agreement
provides that if speculative position limits are exceeded by
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the Trading Advisor in the opinion of independent counsel, the CFTC or any
regulatory body, exchange, or board, the Trading Advisor and its principals and
affiliates will promptly liquidate positions in all of their accounts, including
the Partnership's account, as to which positions are attributed to the Trading
Advisor, as nearly as possible in proportion to the accounts' respective amounts
available for trading (taking into account different degrees of leverage and
"notional equity") to the extent necessary to comply with applicable position
limits. See "The Management Agreement." From time to time, the trading approach
or instructions of the Trading Advisor may have to be modified, and positions
held by the Partnership may have to be liquidated, in order to avoid exceeding
such limits. Such modification or liquidation, if required, could adversely
affect the operations and profitability of the Partnership. See "Conflicts of
Interest--Management of Other Accounts by the Trading Advisor." The Partnership
is also subject to the same speculative position limits and may have to modify
or liquidate positions if such limits are, or are about to be, exceeded by the
Partnership as a whole. Speculative position limits are not applicable to
forward contract trading, although the principals with which DWR or the
Partnership may deal in the forward markets may limit the positions available to
DWR or the Partnership as a consequence of credit considerations.
RISKS RELATING TO THE PARTNERSHIP AND THE OFFERING OF UNITS
PAST RESULTS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. The past
performance results of the Partnership (see "Performance Record of the
Partnership"), are not necessarily indicative of the future performance of the
Partnership.
SUBSTANTIAL CHARGES TO THE PARTNERSHIP. The Partnership is subject to
substantial charges to its Net Assets from the payment of the monthly management
fee, brokerage commissions, other transaction fees and costs, administrative
expenses, and any extraordinary costs, regardless of whether the Partnership
realizes profits. For the years ended December 31, 1996, 1995, and 1994, the
Partnership had total revenues of $28,663,110, $26,524,038, and $3,634,209,
respectively, and total expenses of $10,269,161, $8,066,200, and $7,855,844,
respectively. Because the incentive fee which the Partnership pays to the
Trading Advisor is determined on a quarterly rather than on an annual basis, the
Partnership may be subject to substantial incentive fees in any given 12
consecutive month period despite a decline in the Partnership's Net Assets for
such period as a whole. See "Description of Charges to the Partnership."
RESTRICTED INVESTMENT LIQUIDITY IN THE UNITS. The Units cannot be assigned
or transferred except on the terms and conditions set forth in the Limited
Partnership Agreement, and there will be no public market for the Units. See
"The Limited Partnership Agreement--Restrictions on Transfers or Assignments." A
Limited Partner, after proper notice has been given, may require the Partnership
to redeem all or part of his Units as of, but not before, the sixth month-end
following the closing, in the manner described herein. Thereafter, Units may be
redeemed as of the end of any month. However, no Limited Partner may redeem
fractions of Units, except that fractions of Units may be redeemed if a Limited
Partner is redeeming in multiples of $1,000 or is redeeming his entire interest
in the Partnership. Redemptions of Units are subject to redemption charges
through the twenty-fourth month following the closing at which such Units are
issued. The foregoing redemption charges and the six month limitation will not
apply to Limited Partners who purchase Units pursuant to Exchanges. An investor
who purchases $500,000 or more of Units will not be subject to the redemption
charges described above. Similarly, investors who are Limited Partners in the
Partnership immediately prior to the Closing will not be subject to the minimum
six-month holding period or the redemption charges, described above, with
respect to Units purchased during the Offering Period. The right to obtain
payment on redemption is contingent upon (a) the Partnership having assets
sufficient to discharge its liabilities on the effective date of the redemption,
and (b) the timely receipt by the General Partner of a Request for Redemption.
All liabilities of the Partnership are accrued daily and are reflected in the
daily Net Asset Value of the Partnership. See "Redemptions." Under certain
circumstances (including, but not limited to, the Partnership's inability to
liquidate or a delay in liquidating positions or the default or delay in
payments due the Partnership from dealers, brokers, banks, or other persons),
the Partnership
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may delay payment to Limited Partners requesting redemptions of the
proportionate part of the redemption requests represented by the sums which are
the subject of any such default or delay. See "Redemptions."
CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE. DWR and the General
Partner were instrumental in the organization of the Partnership and may be
deemed "promoters" of the Partnership within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "1933 Act"). Moreover, the Partnership,
DWR and the General Partner are affiliated entities and are represented by a
single counsel. As a consequence of the foregoing, there is an absence of
arm's-length negotiation with respect to some of the terms of this offering. See
"Conflicts of Interest."
LIMITED PARTNERS WILL NOT PARTICIPATE IN MANAGEMENT. Limited Partners will
not participate in the management of the Partnership or in the conduct of its
business. See "The Limited Partnership Agreement--Management of Partnership
Affairs." However, the Limited Partnership Agreement provides that certain
actions may be taken upon the affirmative vote of Limited Partners owning more
than 50% of the Units then owned by Limited Partners. See "The Limited
Partnership Agreement--Amendments; Meetings."
RELIANCE ON THE GENERAL PARTNER. A Limited Partner is relying on the
ability of the General Partner in the selection of a successful trading advisor
for the Partnership. The selection by the General Partner of the Trading Advisor
involved numerous considerations. The General Partner evaluated the performance
record of the Trading Advisor and determined if the Trading Advisor was suitable
for the Partnership's overall trading approach, trading policies and investment
objectives. The General Partner reviewed other aspects of the Trading Advisor
(including the prospective Trading Advisor's trading programs, experience,
volatility of trading, futures interests traded, amount of management and
incentive fees normally charged, reputation of the Trading Advisor and its
personnel and amount of funds under management), and made certain subjective
judgments in retaining the Trading Advisor. Although the General Partner
carefully weighed the above factors in making its selections, other factors not
considered by the General Partner may also be important. In the future, the
General Partner may be required to terminate and replace the Trading Advisor by
reason of its poor performance or for other reasons or to retain additional
trading advisors for the Partnership and similar judgments will have to be made
from time to time.
RISKS RELATING TO THE TRADING ADVISOR
RELIANCE ON THE TRADING ADVISOR TO TRADE SUCCESSFULLY. Futures interests
trading decisions for the Partnership are made by the Trading Advisor, upon
whose judgment and abilities the success of the Partnership largely depends. No
assurance can be given that the trading programs utilized by the Trading Advisor
will prove successful under all or any market conditions.
MARKET FACTORS MAY ADVERSELY INFLUENCE TRADING PROGRAMS. Any factor which
may lessen the prospect of major trends in the future (for example, increased
governmental control of, or participation in, the currency markets) may reduce
the Trading Advisor's ability to trade profitably in the future. Any factor
which would make it more difficult to execute timely trades, such as a
significant lessening of liquidity in a particular market, would also be
detrimental to profitability. As a result of these factors and the general
volatility of the futures interests markets, investors should view their
investment as long term (at least 2 years) in order to permit the programs of
the Trading Advisor to function over time. Further, the Trading Advisor may
alter its programs from time to time in an attempt to better evaluate market
movements. As a result of such periodic modifications, it is possible that the
trading programs used by the Trading Advisor in the future may be different from
those presently in use.
LIMITED TERM OF THE MANAGEMENT AGREEMENT MAY LIMIT ACCESS TO THE TRADING
ADVISOR. The Management Agreement with the Trading Advisor will continue in
effect for two years from the date of the Closing. Thereafter, the Trading
Advisor may terminate the Management Agreement upon 90 days' prior written
notice to the Partnership. In addition, the Management Agreement is terminable
by the Partnership at any time without penalty at any month end upon 5 days'
prior written notice to the Trading Advisor, and at any time upon written notice
under certain circumstances specified therein. The Management Agreement is also
terminable by the Trading Advisor upon 30 days' prior written
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notice to the Partnership under certain circumstances specified therein. See
"The Management Agreement." Upon the expiration or termination of the Management
Agreement, the General Partner will make other arrangements for providing
trading advice. In the selection of any trading advisor upon the termination of
a Management Agreement (including any retention of the Trading Advisor
thereafter), the General Partner will take into account all relevant factors,
including the prospective trading advisor's trading performance, experience,
volatility of trading, futures interests traded, amount of management and
incentive fees normally charged, reputation of the trading advisor and its
personnel and amount of funds under management, as well as the trading policies
and investment objectives of the Partnership. There can be no assurance that the
services of a trading advisor will be available on the same or similar terms in
case of expiration or termination of a Management Agreement.
POSSIBLE ADVERSE EFFECTS OF INCREASING THE ASSETS TRADED BY THE TRADING
ADVISOR. A trading advisor is limited in the amount of assets that it can
successfully manage, both by the difficulty of executing substantially larger
trades made necessary by the larger amount of equity under management and by the
restrictive effect of speculative position limits. Increased equity generally
results in a larger demand for the same futures interests among the accounts
managed by a trading advisor. Furthermore, while there has been substantial
debate on the subject, a considerable number of analysts believe that a trading
advisor's rate of return tends to decrease as the amount of equity under
management increases. The Trading Advisor has not agreed to limit the amount of
additional equity that it may manage. There can be no assurance that the Trading
Advisor's trading programs will not be adversely affected by additional equity,
including the proceeds of this offering.
TRADING DECISIONS BASED ON TECHNICAL TRADING APPROACH MAY NOT PERFORM UNDER
CERTAIN MARKET CONDITIONS. Trading decisions of the Trading Advisor are based
on "technical" trading programs as opposed to "fundamental" trading methods.
Fundamental trading methods attempt to examine external factors (such as
governmental policies, national and international political and economic events,
changing trade prospects, and similar factors which affect the supply and demand
for a particular futures interest) in order to predict future prices. Technical
trading systems, however, generate buy and sell signals which are not based on
analysis of fundamental supply and demand factors, but rather are based, in most
cases, upon a study of actual daily, weekly, and monthly price fluctuations,
volume variations and changes in open interest and other related mathematical,
statistical or quantitative data utilizing charts and/or computers.
The profitability of both technical and fundamental analysis in futures
interests trading generally depends upon the accurate forecasting of major price
moves or trends in some futures interests. No assurance can be given of the
accuracy of the forecasts or the existence of some major price move. The best
trading approach will not be profitable if there are sustained periods in which
there are no price moves or trends of the kind the trading approach seeks to
identify and follow. In the past, there have been periods without discernible
trends and, presumably, such periods will continue to occur in the future.
Periods without such price moves may produce losses. Any factor which would
lessen the prospect of major trends occurring in the future (such as increased
governmental control of or participation in the markets) may reduce the prospect
that a particular trading approach will be profitable in the future. Moreover,
any factor which would make it more difficult to execute trades at desired
prices in accordance with a trading approach (such as a significant lessening of
liquidity in a particular market) would also be detrimental to profitability.
Many other trading approaches utilize similar analyses in making trading
decisions; therefore, bunching of buy and sell orders can occur which makes it
more difficult for a position to be taken or liquidated. No assurance can be
given that the Trading Advisor's trading programs and trading decisions will be
successful under all or any market conditions.
A limiting factor in the use of technical analysis is that such an approach
generally requires price movement data which can be translated into price trends
sufficient to dictate a market entry or exit decision. Any trading approach
which is based upon such technical concepts may not perform well when futures
interests markets are trendless or erratic, because a technical approach may
fail to identify a trend on which action should be taken or it may react to
minor price movements and thus establish a position contrary to overall price
trends, which may result in losses. In addition, a technical trading
18
<PAGE>
approach may underperform other trading approaches when fundamental factors
dominate price moves within a given market. For example, since technical
analysis generally does not take into account fundamental factors such as
supply, demand, and political and economic events (except insofar as such
factors may have influenced price and other technical data constituting input
information for such approach), a technical trading approach may be unable to
respond to fundamental causative events until after their impact has ceased to
influence the markets; positions dictated by such resultant price movements may
be incorrect in light of the fundamental factors then affecting the markets.
The calculations which underlie the Trading Advisor's trading programs
involve many variables and are determined primarily by computer. The use of a
computer in developing and operating a trading system does not assure the
success of the system because a computer is merely an aid in compiling and
organizing trading information. No assurance is given that the trading
strategies employed by the Trading Advisor will produce profits or will not lose
money.
POSSIBLE EFFECTS OF OTHER TREND-FOLLOWING SYSTEMS. Futures interests
trading systems employing trend-following signals, based either exclusively on
technical analysis or on a combination of fundamental and technical analysis,
are not new. If many traders follow very similar systems, similar buy and sell
orders can be placed at or about the same time, which makes it more difficult
for a position to be established or liquidated at a given price. The General
Partner is aware of an increase in both the use of trend-following systems in
recent years and in the overall volume of trading and liquidity of the futures
interests markets. However, it is difficult to be certain whether the total
amount of funds traded on a trend-following basis, either for futures contracts
as a whole or for a particular futures interests, is greater in proportion to
the overall volume and liquidity of markets presently than has been the case in
the past. While the effect of any increase in the proposition of funds traded
pursuant to trend-following systems in recent years cannot be determined, any
such increase could alter trading patterns or affect execution of trades to the
detriment of the Partnership.
TAXATION AND REGULATORY RISKS
POSSIBILITY OF TAXATION AS A CORPORATION. The General Partner has been
advised by its legal counsel, Cadwalader, Wickersham & Taft, that in its opinion
under current United States federal income tax (hereinafter "federal income
tax") laws and regulations, the Partnership will be classified as a partnership
and not as an association taxable as a corporation. This status has not been
confirmed by a ruling from, and such advice is not binding upon, the United
States Internal Revenue Service (the "Internal Revenue Service"). No such ruling
has been or will be requested. The facts and authorities relied upon by counsel
in their opinion may change in the future. If the Partnership were taxed as a
corporation for federal income tax purposes, income or loss of the Partnership
would not be passed through to Partners and the Partnership would be subject to
tax on its income at the rates of tax applicable to corporations, without any
deductions for distributions to the Partners. In addition, all or a portion of
distributions made to the Partners could be taxable to the Partners as dividends
or capital gains. See "Material Federal Income Tax Considerations."
PARTNER'S TAX LIABILITY MAY EXCEED DISTRIBUTIONS. If the Partnership has
profits for a taxable year, such profit will be taxable to the Partners in
accordance with their distributive shares of Partnership profit, whether or not
the profit actually has been distributed to the Partners. Accordingly, taxes
payable by Partners with respect to Partnership profit may exceed the amount of
Partnership distributions, if any, for a taxable year. Further, the Partnership
may sustain losses offsetting such profit in a succeeding taxable year, so that
Partners may never receive the profit on which they were taxed in the prior
year. See "Material Federal Income Tax Considerations."
POSSIBLE LIMITATION ON DEDUCTION OF CERTAIN EXPENSES. The deductibility of
certain miscellaneous itemized deductions is limited to the extent such expenses
exceed 2% of the adjusted gross income of an individual, trust or estate. In
addition, certain of an individual's itemized deductions are further reduced by
an amount equal to the lesser of (i) 3% of such individual's adjusted gross
income over a certain threshold amount and (ii) 80% of such itemized deductions.
Based upon the activities of the Partnership, the General Partner has been
advised by its legal counsel that in its opinion various expenses incurred by
the Partnership should not be subject to these limitations except to the extent
that the Internal Revenue Service promulgates regulations that so provide. See
"Material Federal Income Tax Considerations."
19
<PAGE>
POSSIBILITY OF TAX AUDIT. There can be no assurance that the Partnership's
tax return will not be audited by the Internal Revenue Service or that
adjustments to such return will not be made as a result of such an audit. If an
audit results in an adjustment, Limited Partners may be required to file amended
returns (which may themselves also be audited) and to pay back taxes plus
interest and/or penalties that may then be due. See "Material Federal Income Tax
Considerations."
ABSENCE OF REGULATIONS APPLICABLE TO SECURITIES MUTUAL FUNDS AND THEIR
ADVISERS. The Partnership is not registered as an investment company or a
"mutual fund" under the Investment Company Act of 1940, as amended (or any
similar state law), and neither the General Partner nor the Trading Advisor is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (or any similar state law). Investors, therefore, are not accorded
the protective measures provided by such legislation. However, in accordance
with the provisions of the Commodity Exchange Act, as amended (the "CEAct"), the
regulations of the CFTC thereunder and the NFA rules, the General Partner is
registered as a commodity pool operator, the Trading Advisor is registered as a
commodity trading advisor, and DWR is registered as a futures commission
merchant, each subject to regulation by the CFTC and each a member of the NFA in
such respective capacities.
THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF
ALL THE RISKS INVOLVED IN THIS OFFERING. POTENTIAL INVESTORS SHOULD READ THIS
PROSPECTUS IN ITS ENTIRETY BEFORE DETERMINING WHETHER TO INVEST IN THE UNITS.
CONFLICTS OF INTEREST
RELATIONSHIP OF THE GENERAL PARTNER TO THE COMMODITY BROKER
The General Partner is a wholly-owned subsidiary of Dean Witter, Discover &
Co. ("DWD"), a principal subsidiary of which, DWR, acts as the commodity broker
for, and receives brokerage commissions from, the Partnership pursuant to a
Customer Agreement. Because the General Partner is affiliated with DWR, the
General Partner will have a conflict of interest between its responsibilities to
limit and reduce the brokerage commissions paid by the Partnership and otherwise
manage the Partnership for the benefit of the Limited Partners and its interest
in obtaining for DWR favorable brokerage commissions. Most customers of DWR who
maintain commodity trading accounts over $1,000,000 pay commissions at
negotiated rates which are substantially less than the rate which is paid by the
Partnership. Four of the 22 currently actively trading commodity pools for which
Demeter acts as general partner are charged flat-rate asset based brokerage
fees, 16 of such commodity pools are charged brokerage fees on a roundturn
brokerage commission basis (I.E., a charge for entering and exiting each futures
interest transaction) and such fees are subject to a monthly asset-based cap,
and two are charged on a roundturn brokerage commission basis without a monthly
asset-based cap. See "The Commodity Broker" and "Fiduciary Responsibility."
The General Partner selected the Trading Advisor and will participate in the
selection of any new trading advisor for the Partnership. However, because the
selection of trading advisors who engage in a high volume of trades will
increase the costs to DWR of serving as commodity broker for the Partnership (if
commissions for any month exceed the asset-based cap described under
"Description of Charges to the Partnership"), without DWR's receipt of an
offsetting increase in revenue, the General Partner has an incentive to select
trading advisors and trading systems which engage in a volume of trades which
generate commission revenue up to, but not exceeding the cap.
In addition, the Partnership, DWR and the General Partner are affiliated
entities and are represented by a single counsel. As a consequence of the
foregoing, there is an absence of arm's-length negotiation with respect to some
of the terms of this offering.
While the Customer Agreement is nonexclusive, so that the Partnership has
the right to seek lower commission rates from other brokers at any time, the
General Partner believes that the Customer Agreement and other arrangements
between the Partnership and DWR are fair, reasonable and competitive, and
represent the best prices and services available, considering the matters
discussed in this
20
<PAGE>
paragraph below and in the immediately following paragraph. In addition to DWR's
cost of executing futures interests trades for the Partnership, DWR is subject
to the risk and expense of offering the Units, and the General Partner, an
affiliate of DWR, will provide ongoing services to the Partnership, which
include administering the redemption of Units, and the General Partner has
financial obligations as the general partner of the Partnership. A significant
portion of the brokerage commissions to be paid to DWR by the Partnership will
be paid by DWR to certain of its employees for providing continuing assistance
to Limited Partners to whom they have sold Units. Such DWR employees who provide
continuing advice to Limited Partners as to when and whether to redeem Units may
have a conflict of interest by reason of their continuing receipt of a portion
of the brokerage commissions paid to DWR by the Partnership.
The General Partner will review the brokerage arrangements at least annually
to ensure they are fair, reasonable and competitive, and that they represent the
best price and services available, taking into consideration the size and
trading activity of the Partnership and the services provided, and costs,
expenses, and risk borne, by DWR and the General Partner. See "The Commodity
Broker" and "Fiduciary Responsibility."
The Partnership trades in forward contracts through DWR. The General Partner
has a conflict of interest in selecting its affiliate as the party with and
through which the Partnership executes its forward trades and selecting other
persons which might be able to make a better price or superior execution
available to the Partnership. The General Partner will review the Partnership's
forward trading arrangements from time to time in an attempt to determine
whether such arrangements are competitive with those of other comparable pools
in light of the circumstances. See "Risk Factors-- Risks Relating to Futures
Interests Trading and the Futures Interests Markets--Special Risks Associated
with Forward Trading" and "The Futures, Options and Forward Markets."
DWR and the General Partner may, from time to time, be subject to
conflicting demands in respect of their obligations to the Partnership and other
commodity pools and accounts. Certain pools may generate larger brokerage
commissions to DWR, resulting in increased payments to DWR employees as
described above. Since DWR employees may receive greater compensation from the
sale of units of one pool over another, such employees are subject to a conflict
of interest in providing advice to Limited Partners.
ACCOUNTS OF AFFILIATES OF THE GENERAL PARTNER, THE TRADING ADVISOR AND DWR
While the General Partner does not trade futures interests for its own
account (other than indirectly as a consequence of its position as general
partner of commodity pools), certain officers, directors and employees of the
General Partner, the Trading Advisor and DWR, and their affiliates, principals,
directors, officers, and employees, may trade futures interests for their own
accounts. The records of such trading will not be available to Limited Partners.
In addition, DWR is a large futures commission merchant, handling substantial
customer business in physical commodities and futures interests, and is a
clearing member of all of the major commodity exchanges in the United States. It
is possible that DWR will effect transactions for the Partnership in which the
other party to such transactions is an employee of or otherwise affiliated with
the General Partner, DWR, or their affiliates. Such persons might also compete
with the Partnership in bidding on purchases or sales of futures interests
without knowing that the Partnership is also bidding. It is possible that
transactions for the officers, directors, affiliates, employees, customers and
correspondents of DWR, the General Partner or the Trading Advisor might be
effected when similar trades for the Partnership are not executed or are
executed at less favorable prices. In addition, certain of the officers and
directors of the General Partner (who are also employees of and are compensated
by the Commodity Broker) may individually receive from DWR compensation and
bonuses based on various factors, including brokerage commissions generated by
the Partnership. See "The General Partner" and "The Commodity Broker."
The Limited Partnership Agreement provides that, except as described therein
or in this Prospectus, no person may receive, directly or indirectly, any
advisory, management, or incentive fee for investment advice who shares or
participates in per trade commodity brokerage commissions paid by
21
<PAGE>
the Partnership. No commodity broker for the Partnership may pay, directly or
indirectly, rebates or "give ups" to the General Partner or any trading advisor,
and such prohibitions may not be circumvented by any reciprocal business
arrangements.
MANAGEMENT OF OTHER ACCOUNTS BY THE TRADING ADVISOR
The Management Agreement allows the Trading Advisor to manage futures
interests accounts in addition to the Partnership's account. The Trading Advisor
and its principals and affiliates may at any time be trading their own
proprietary accounts, advising accounts for other commodity pools and/or
individual customers, and operating other commodity pools, and will continue
such activities in the future. The Trading Advisor also operates additional
trading programs and uses other trading programs in its management of accounts,
some of which programs will not be used in trading for the Partnership. Such
other trading programs have in the past and may in the future experience
significantly different performance results than the programs used in trading
for the Partnership. The Trading Advisor is required to aggregate futures and
option positions in other accounts managed by it with futures and option
positions in the Partnership's account for speculative position limit purposes.
Such aggregation of positions could require the Trading Advisor to liquidate or
modify positions for all such accounts, and such liquidation or modification may
adversely affect the Partnership. The Trading Advisor may have a conflict of
interest in rendering advice because its compensation for managing some other
accounts may exceed its compensation for managing the Partnership's account, and
therefore may provide an incentive to favor such other accounts. Moreover, if
the Trading Advisor makes trading decisions for such accounts and the
Partnership's account at or about the same time, the Partnership may be
competing with such other accounts for the same or similar positions. While the
records of accounts of the Trading Advisor's employees and accounts managed by
the Trading Advisor will not be made available to Limited Partners, the
Management Agreement permits the General Partner access to such records in order
to determine that the Partnership's account is traded fairly. The Management
Agreement also provides that the Trading Advisor will deal with the Partnership
in a fiduciary capacity to the extent recognized by applicable law and will not
enter into transactions where it knowingly or deliberately favors itself or
another client over the Partnership.
CUSTOMER AGREEMENT WITH DWR
Under the Partnership's Customer Agreement with DWR, all funds, futures
interests positions, securities, and credits carried for the Partnership are
held as security for the Partnership's obligations to DWR; the margins required
to initiate or maintain open positions will be as established by DWR from time
to time; and DWR may close out positions, purchase futures interests, or cancel
orders at any time it deems necessary for its protection, without the consent of
the Partnership. The Partnership also has agreed to indemnify and defend DWR and
its stockholders, employees, officers, directors and affiliates against certain
liabilities incurred by them by reason of acting as the Partnership's commodity
broker. DWR, the General Partner or the Limited Partners by majority vote may
terminate the brokerage relationship and close the Partnership's futures
interests accounts at DWR at any time upon 60 days' notice. If so terminated,
the Partnership would have to negotiate a new customer agreement with a
commodity broker upon terms and conditions, including brokerage commission
rates, which cannot now be determined.
OTHER COMMODITY POOLS
The General Partner is or has been the general partner for 27 other
commodity pools. DWR is the commodity broker for such pools and several other
commodity pools. Each may in the future establish and/or be the general partner
or commodity broker for additional commodity pools, and any such pool may be
said to be in competition with the Partnership in that any one or more of such
pools might compete with the Partnership for the execution of trades.
FIDUCIARY RESPONSIBILITY
Investors should be aware that the General Partner has a fiduciary duty
under the Partnership Act to the Limited Partners to exercise good faith and
fairness in all dealings affecting the Partnership. The
22
<PAGE>
General Partner's fiduciary duty to the Limited Partners under the Limited
Partnership Agreement is in accordance with the fiduciary duty owed to limited
partners by a general partner under Delaware law. The Limited Partnership
Agreement prohibits the Limited Partners from limiting, by any means, the
fiduciary duty of the General Partner owed to the Limited Partners under
statutory or common law. In the event that a Limited Partner believes that the
General Partner has violated its responsibilities, the Limited Partner may seek
legal relief for himself and all other similarly situated Limited Partners or on
behalf of the Partnership under the Partnership Act, the CEAct, applicable
federal and state securities laws and other applicable laws to recover damages
from, or to require an accounting by, the General Partner. The Trading Advisor
also has a fiduciary responsibility under applicable law to the Partnership.
The Limited Partnership Agreement, the Customer Agreement, and the
Management Agreement generally provide that the General Partner, DWR, the
Trading Advisor and their "affiliates" (as defined in the Limited Partnership
Agreement) shall not be liable to the Partnership, the Limited Partners, its or
their successors or assigns, for any act, omission, conduct, or activity
undertaken by or on behalf of the Partnership which the General Partner, DWR or
the Trading Advisor, as applicable, determines, in good faith, to be in the best
interests of the Partnership, unless such act, omission, conduct, or activity of
or by the General Partner, DWR, the Trading Advisor or their affiliates, as
applicable, constituted misconduct or negligence.
The Limited Partnership Agreement, the Customer Agreement, the Selling
Agreement, and the Management Agreement generally provide that the Partnership
will indemnify, defend, and hold harmless the General Partner, DWR, the Trading
Advisor and their affiliates from and against any loss, liability, damage, cost,
or expense (including attorneys' and accountants' fees and expenses incurred in
defense of any demands, claims, or lawsuits) actually and reasonably incurred
arising from acts, omissions, activities, or conduct undertaken by or on behalf
of the Partnership, including, without limitation, any demands, claims, or
lawsuits initiated by a Limited Partner (or assignee thereof), PROVIDED that (1)
the General Partner, DWR, or the Trading Advisor, as applicable, has determined,
in good faith, that the act, omission, activity or conduct giving rise to the
claim for indemnification was in the best interests of the Partnership, and (2)
the act, omission, activity, or conduct that was the basis for such loss,
liability, damage, cost, or expense was not the result of misconduct or
negligence. Payment of any indemnity to such person by the Partnership would
reduce the Net Assets of the Partnership. The General Partner does not carry
insurance covering such potential losses and it is not contemplated that the
Partnership will carry liability insurance covering its potential
indemnification exposure.
Notwithstanding the foregoing, in any action brought by a Limited Partner in
the right of the Partnership, the General Partner or any affiliate thereof may
only be indemnified to the extent and subject to the conditions specified in the
Partnership Act (which presently permits indemnification of any partner to the
extent provided in the Limited Partnership Agreement, as described in the
immediately preceding paragraph). Also, no indemnification of the General
Partner, DWR, the Trading Advisor or their affiliates by the Partnership shall
be permitted for losses, liabilities, or expenses arising from or out of alleged
violations of federal or state securities laws unless: (1) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular indemnitee, or (2) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee, or (3) a court of competent jurisdiction approves
a settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and related costs should be made, PROVIDED,
with regard to such court approval, the indemnitee must apprise the court of the
position of the SEC, and the positions of the respective securities
administrators of Massachusetts, Missouri, Tennessee and/or those other states
and jurisdictions in which the plaintiffs claim they were offered or sold Units,
with respect to indemnification for securities laws violations, before seeking
court approval for indemnification. Note that, with respect to indemnification
for liabilities arising under the 1933 Act for directors, officers or
controlling persons of the Partnership or the General Partner, it is the opinion
of the SEC that such indemnification is against
23
<PAGE>
public policy, as expressed in the 1933 Act, and is therefore unenforceable. The
CFTC has issued a statement of policy relating to indemnification of officers
and directors of a futures commission merchant (such as DWR) and its controlling
persons under which the CFTC has taken the position that whether such an
indemnification is consistent with the policies expressed in the CEAct will be
determined by the CFTC on a case-by-case basis.
PERFORMANCE RECORD OF THE PARTNERSHIP
PERFORMANCE RECORD
Table 1 sets forth the actual past performance record of the Partnership
from the commencement of trading operations on February 1, 1991 through December
31, 1996. Since the commencement of trading operations, all assets of the
Partnership have been allocated to the Trading Advisor for trading. However, the
General Partner will in the future allocate the assets of the Partnership to
trading systems of the Trading Advisor in proportions different than previously
employed, and will allocate assets of the Partnership to trading systems of the
Trading Advisor never previously employed for the Partnership. These differences
from historical allocations may affect future performance, including greater (or
lesser) volatility of returns.
INVESTORS ARE CAUTIONED THAT THE INFORMATION SET FORTH IN THE CAPSULE
PERFORMANCE SUMMARY AND FOOTNOTES THERETO IS NOT INDICATIVE OF, AND HAS NO
BEARING ON, ANY TRADING RESULTS WHICH MAY BE ATTAINED BY THE PARTNERSHIP IN THE
FUTURE, SINCE PAST RESULTS ARE NOT A GUARANTEE OF FUTURE RESULTS. THERE CAN BE
NO ASSURANCE THAT THE PARTNERSHIP WILL MAKE ANY PROFITS AT ALL OR WILL BE ABLE
TO AVOID INCURRING SUBSTANTIAL LOSSES. INVESTORS SHOULD ALSO NOTE THAT INTEREST
INCOME MAY CONSTITUTE A SIGNIFICANT PORTION OF A COMMODITY POOL'S TOTAL INCOME
AND, IN CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED
OR UNREALIZED LOSSES FROM FUTURES INTERESTS TRADING.
TABLE 1
PERFORMANCE OF DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
Type of Pool: Publicly-Offered Pool
Inception of Trading: February 1991
Aggregate Capital Contributions: $100,491,090
Current Capitalization: $87,312,143
Largest Monthly % Drawdown (Month/Year): (14.40)%-(1/92)
Largest Month-End Peak-to-Valley Drawdown: (25.65)%-(4
months)(1/92-4/92)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
MONTHLY RATES OF RETURN % % % % % %
- ---------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
January........................... 4.15 (3.70) (2.33) (0.67) (14.40)
February.......................... (4.54) 10.40 (1.61) 9.17 (9.10) (1.04)
March............................. 1.61 11.65 5.45 (1.34) 0.21 5.63
April............................. 1.77 4.56 0.53 4.95 (4.64) (0.73)
May............................... (0.91) (0.02) 1.34 2.32 0.45 1.68
June.............................. 1.36 (1.29) 3.59 0.25 13.01 0.33
July.............................. (1.93) (1.98) (4.70) 7.41 13.09 (9.15)
August............................ (0.52) 2.38 (2.82) (2.61) 10.57 0.05
September......................... 3.79 (1.47) 1.40 (0.42) (7.37) 7.86
October........................... 11.85 0.86 1.79 (2.38) (4.45) (2.76)
November.......................... 9.05 0.89 (4.34) (1.17) 0.79 2.98
December.......................... (1.61) 1.72 (3.29) 3.56 (0.55) 22.87
Compound Annual (Period) Rate of
Return........................... 25.50 25.37 (5.41) 19.88 (6.37) 27.68
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
24
<PAGE>
FOOTNOTES TO TABLE 1
"DRAWDOWN" MEANS DECLINE IN NET ASSET VALUE PER UNIT. "WORST MONTH-END
PEAK-TO-VALLEY DRAWDOWN" AS USED HEREIN IS EQUIVALENT TO THE "DRAWDOWN"
EXPERIENCED BY THE PARTNERSHIP, DETERMINED IN ACCORDANCE WITH CFTC RULE 4.10 AND
REPRESENTS THE GREATEST PERCENTAGE DECLINE FROM ANY MONTH-END NET ASSET VALUE
PER UNIT WHICH OCCURS WITHOUT SUCH MONTH-END NET ASSET VALUE PER UNIT BEING
EQUALED OR EXCEEDED AS OF A SUBSEQUENT MONTH-END. IN DOLLAR TERMS, FOR EXAMPLE,
IF THE NET ASSET VALUE PER UNIT OF THE PARTNERSHIP DECLINED BY $1 IN EACH OF
JANUARY AND FEBRUARY, INCREASED BY $1 IN MARCH AND DECLINED AGAIN BY $2 IN
APRIL, A "PEAK-TO-VALLEY DRAWDOWN" ANALYSIS CONDUCTED AS OF THE END OF APRIL
WOULD CONSIDER THAT "DRAWDOWN" TO BE STILL CONTINUING AND TO BE $3 IN AMOUNT,
WHEREAS IF THE NET ASSET VALUE OF A UNIT HAD INCREASED BY $2 IN MARCH, THE
JANUARY-FEBRUARY DRAWDOWN WOULD HAVE ENDED AS OF THE END OF FEBRUARY AT THE $2
LEVEL. SUCH "DRAWDOWNS" ARE MEASURED ON THE BASIS OF MONTH-END NET ASSET VALUES
ONLY, AND DO NOT REFLECT INTRA-MONTH FIGURES.
"MONTHLY RATE OF RETURN" IS NET PERFORMANCE FOR THE MONTH (GROSS REALIZED
PROFIT (LOSS), PLUS INCREASE (DECREASE) IN UNREALIZED PROFIT (LOSS), PLUS
INTEREST INCOME, MINUS BROKERAGE COMMISSIONS, MANAGEMENT AND INCENTIVE FEES AND
OTHER EXPENSES), DIVIDED BY THE BEGINNING NET ASSET VALUE FOR THE MONTH.
"COMPOUND ANNUAL (PERIOD) RATE OF RETURN" IS CALCULATED BY MULTIPLYING ON A
COMPOUND BASIS EACH OF THE MONTHLY RATES OF RETURN AND NOT BY ADDING OR
AVERAGING SUCH MONTHLY RATES OF RETURN. FOR PERIODS OF LESS THAN ONE YEAR, THE
RESULTS ARE YEAR-TO-DATE.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
HISTORICAL PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
JAN-91 1000
<S> <C>
Feb-91 989.63
Mar-91 1045.37
Apr-91 1037.69
May-91 1055.12
Jun-91 1058.6
Jul-91 961.72
Aug-91 962.26
Sep-91 1037.82
Oct-91 1009.13
Nov-91 1039.16
Dec-91 1276.79
Jan-92 1092.93
Feb-92 993.52
Mar-92 995.58
Apr-92 949.34
May-92 953.57
Jun-92 1077.6
Jul-92 1218.66
Aug-92 1347.5
Sep-92 1248.25
Oct-92 1192.66
Nov-92 1202.12
Dec-92 1195.52
Jan-93 1187.51
Feb-93 1296.45
Mar-93 1279.06
Apr-93 1342.32
May-93 1373.5
Jun-93 1376.94
Jul-93 1479.01
Aug-93 1440.37
Sep-93 1434.39
Oct-93 1400.24
Nov-93 1383.91
Dec-93 1433.13
Jan-94 1399.79
Feb-94 1377.32
Mar-94 1452.33
Apr-94 1460.03
May-94 1479.66
Jun-94 1532.76
Jul-94 1460.8
Aug-94 1419.62
Sep-94 1439.5
Oct-94 1465.23
Nov-94 1401.67
Dec-94 1355.58
Jan-95 1305.41
Feb-95 1441.19
Mar-95 1609.12
Apr-95 1682.52
May-95 1682.16
Jun-95 1660.54
Jul-95 1627.72
Aug-95 1666.45
Sep-95 1642.02
Oct-95 1656.06
Nov-95 1670.75
Dec-95 1699.44
Jan-96 1769.92
Feb-96 1689.64
Mar-96 1716.92
Apr-96 1747.26
May-96 1731.28
Jun-96 1754.76
Jul-96 1720.95
Aug-96 1712.08
Sep-96 1777.03
Oct-96 1987.62
Nov-96 2167.59
Dec-96 2132.79
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
25
<PAGE>
PORTFOLIO STRATEGY FUND VS. BARCLAY CTA INDEX
HISTORICAL PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO STRATEGY FUND BARCLAY CTA INDEX
<S> <C> <C>
Jan-91 1000 1000
Feb-91 989.63 991.7
Mar-91 1045.37 1034.14
Apr-91 1037.69 1014.6
May-91 1055.12 995.26
Jun-91 1058.6 1024.82
Jul-91 961.72 990.38
Aug-91 962.26 971.37
Sep-91 1037.82 997.79
Oct-91 1009.13 988.71
Nov-91 1039.16 991.28
Dec-91 1276.79 1090.71
Jan-92 1092.93 1041.3
Feb-92 993.52 1014.12
Mar-92 995.58 995.76
Apr-92 949.34 987.8
May-92 953.57 980.59
Jun-92 1077.6 1024.13
Jul-92 1218.66 1068.26
Aug-92 1347.5 1092.83
Sep-92 1248.25 1075.24
Oct-92 1192.66 1077.28
Nov-92 1202.12 1090.1
Dec-92 1195.52 1080.73
Jan-93 1187.51 1061.17
Feb-93 1296.45 1119.21
Mar-93 1279.06 1113.62
Apr-93 1342.32 1149.25
May-93 1373.5 1156.38
Jun-93 1376.94 1167.71
Jul-93 1479.01 1211.03
Aug-93 1440.37 1173.37
Sep-93 1434.39 1163.4
Oct-93 1400.24 1156.65
Nov-93 1383.91 1158.38
Dec-93 1433.13 1192.79
Jan-94 1399.79 1153.42
Feb-94 1377.32 1136.82
Mar-94 1452.33 1159.89
Apr-94 1460.03 1139.36
May-94 1479.66 1171.04
Jun-94 1532.76 1200.31
Jul-94 1460.8 1187.83
Aug-94 1419.62 1150.89
Sep-94 1439.5 1170.22
Oct-94 1465.23 1171.16
Nov-94 1401.67 1190.83
Dec-94 1355.58 1185
Jan-95 1305.41 1163.79
Feb-95 1441.19 1203.36
Mar-95 1609.12 1280.61
Apr-95 1682.52 1295.6
May-95 1682.16 1302.02
Jun-95 1660.54 1285.4
Jul-95 1627.72 1269.59
Aug-95 1666.45 1299.18
Sep-95 1642.02 1297.36
Oct-95 1656.06 1296.97
Nov-95 1670.75 1310.46
Dec-95 1699.44 1346.62
Jan-96 1769.92 1382.45
Feb-96 1689.64 1316.5
Mar-96 1716.92 1324.4
Apr-96 1747.26 1403.2
May-96 1731.28 1375.56
Jun-96 1754.76 1371.16
Jul-96 1720.95 1348.4
Aug-96 1712.08 1339.9
Sep-96 1777.03 1372.86
Oct-96 1987.62 1471.98
Nov-96 2167.59 1490.95
Dec-96 2132.79 1469.93
</TABLE>
NOTE THAT WHILE THE BARCLAY CTA INDEX (PREPARED BY THE BARCLAY TRADING
GROUP, LTD., FAIRFIELD, IOWA) REFLECTS RESULTS NET OF ACTUAL FEES AND EXPENSES,
IT INCLUDES ACCOUNTS WITH TRADING ADVISORS AND FEE STRUCTURES THAT DIFFER FROM
PUBLIC MANAGED FUTURES FUNDS (SUCH AS THE PARTNERSHIP). ACCORDINGLY, WHILE THE
BARCLAY CTA INDEX IS BELIEVED TO BE REPRESENTATIVE OF MANAGED FUTURES IN
GENERAL, THE PERFORMANCE OF PUBLIC MANAGED FUTURES FUNDS AS A SUBCLASS MAY
DIFFER. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
26
<PAGE>
SELECTED FINANCIAL DATA
The following are the results of operations of the Partnership for the years
ended December 31, 1996, 1995, 1994, 1993, and 1992. For the complete financial
statements of the Partnership, see page F-1 of this Prospectus. For performance
information with respect to the Partnership, see "Performance Record of the
Partnership."
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- ---------- ----------- -----------
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
REVENUES
Trading Profit (Loss):
Realized............................................... 26,235,502 23,275,553 2,385,705 24,274,880 28,150,575
Net change in unrealized............................... (567,233) 58,584 (1,311,896) 2,287,764 (29,499,962)
----------- ---------- ---------- ----------- -----------
Total Trading Results................................ 25,668,269 23,334,137 1,073,809 26,562,644 (1,349,387)
Interest income (DWR).................................... 2,994,841 3,189,901 2,560,400 1,748,749 1,967,816
----------- ---------- ---------- ----------- -----------
Total Revenues....................................... 28,663,110 26,524,038 3,634,209 28,311,393 618,429
----------- ---------- ---------- ----------- -----------
EXPENSES
Brokerage commissions (DWR).............................. 3,416,583 2,700,065 2,712,291 3,404,018 4,580,016
Management fees.......................................... 3,281,267 3,332,702 3,650,550 4,110,706 3,957,675
Incentive fees........................................... 3,278,840 1,587,389 1,106,885 2,108,683 --
Transaction fees and costs............................... 233,900 231,876 204,327 272,345 422,246
Bank fees................................................ 31,571 106,168 73,791 140,579 --
Administrative expenses.................................. 27,000 108,000 108,000 182,573 186,000
----------- ---------- ---------- ----------- -----------
Total Expenses..................................... 10,269,161 8,066,200 7,855,844 10,218,904 9,145,937
----------- ---------- ---------- ----------- -----------
NET INCOME (LOSS)........................................ 18,393,949 18,457,838 (4,221,635) 18,092,489 (8,527,508)
----------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ----------- -----------
NET INCOME (LOSS) ALLOCATION
Limited Partners......................................... 17,979,664 18,129,110 (4,152,982) 17,852,273 (8,445,351)
General Partner.......................................... 414,285 328,728 (68,653) 240,216 (82,157)
NET INCOME (LOSS) PER UNIT FOR PERIOD
Limited Partners......................................... 433.35 343.86 (77.55) 237.61 (81.27)
General Partner.......................................... 433.35 343.86 (77.55) 237.61 (81.27)
TOTAL ASSETS AT END OF PERIOD............................ 91,201,711 82,278,215 78,252,862 102,591,738 99,173,707
NET ASSET VALUE PER UNIT
Limited Partners......................................... 2,132.79 1,699.44 1,355.58 1,433.13 1,195.52
General Partner.......................................... 2,132.79 1,699.44 1,355.58 1,433.13 1,195.52
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY. The assets of the Partnership are deposited with DWR in futures
interests trading accounts established by DWR for the Trading Advisor and are
used by the Partnership as margin to engage in trading. DWR holds such assets in
either designated depositories or in securities approved by the CFTC for
investment of customer funds. See "Investment Program, Use of Proceeds and
Trading Policies." The Partnership's assets held by DWR 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. See "Risk Factors--Risks Relating to Futures Interests Trading and the
Futures Interests Markets--Futures Interests Trading May be Illiquid." Most
United States futures exchanges limit fluctuations in certain futures interest
prices during a single day by regulations referred to as "daily price
fluctuations limits" or "daily limits." Pursuant to such regulations, during a
single trading day no trades may be executed at prices beyond the daily limit.
If the price for a particular futures interest has increased or decreased by an
amount equal to the "daily limit," positions in such futures interest can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Futures interests prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its futures
interests and result in restrictions on redemptions. However, since the
commencement of trading by the Partnership, there has never been a time when
illiquidity has affected a material portion of the Partnership's assets. See
"Redemptions."
There is no limitation on daily price moves in trading forward contracts on
foreign currency. The markets for some world currencies have low trading volume
and are illiquid, which may prevent the Partnership from trading in potentially
profitable markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to substantial losses.
Either of these market conditions could result in restrictions on redemptions.
CAPITAL RESOURCES. The Partnership does not have, nor does it expect to
have, any capital assets. Redemptions and sales of additional Units in the
future will affect the amount of funds available for investments in futures
interests in subsequent periods. As redemptions 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. Due to the nature of the Partnership's business, the
Partnership's results depend on the Trading Advisor and the ability of its
trading systems to take advantage of price movements or other profit
opportunities in the futures interests markets. The following presents a summary
of the Partnership's operations for the years 1994, 1995 and 1996, and a general
discussion of the Partnership's trading activities in certain markets during
each period. It is important to note, however, that the Trading Advisor trades
in various markets at different times and that prior activity in a particular
market does not mean that such market will be actively traded by the Trading
Advisor or will be profitable in the future. Consequently, the results of
operations of the Partnership are difficult to discuss other than in the context
of the Trading Advisor's trading activities on behalf of the Partnership as a
whole and how the Partnership has performed in the past. See "Performance Record
of the Partnership" and "Selected Financial Data" above and the Partnership's
financial statements herein.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1994. During 1994, the
Partnership recorded a net loss of 5.4% to close out the year at a Net Asset
Value per Unit of $1,355.58.
January and February resulted in losses from the financial sectors,
particularly in global interest rate futures. Foreign exchange trading was also
difficult as the choppy trendless market conditions prevalent in the second half
of 1993 continued. Most currency losses resulted from transactions
28
<PAGE>
involving the German mark and Japanese yen. March brought positive performance
as difficult worldwide financial markets provided the Partnership with
opportunities from short positions in global interest rates, and additional
gains were recorded from the Japanese yen, German mark and Swiss franc and a
strong upward trend in silver.
The Partnership's second quarter was profitable as a strong downward move
emerged in the U.S. dollar relative to major European currencies. The majority
of these gains resulted from long positions in the German mark, Swiss franc and
British pound. Additional gains resulted from short positions in interest rate
futures as bond prices were pushed lower due in part to the weakness of the U.S.
dollar. Coffee and crude oil futures also generated profits throughout the
quarter.
The third quarter proved to be a difficult period for the Partnership as the
dual price moves of higher global interest rates and a weak U.S. dollar, which
contributed to the second quarter's profits, suddenly reversed in July. Losses
were generally small but widespread through interest rates, currencies and
precious metals.
The Partnership began the fourth quarter with positive performance from a
move downward in the value of the U.S. dollar. The majority of gains were
recorded from long positions in major European currencies, particularly the
German mark. November's losses were largely the result of unprofitable positions
in currencies as the U.S. dollar again reversed from its previous decline, while
profits in sugar and coffee offset a portion of the currency losses. The
Partnership recorded losses in December primarily as a result of a sudden
decrease in value of the U.S. dollar on December 28th.
In summary, 1994 was a year filled with unfavorable and difficult market
cycles to trade. The Partnership experienced positive performance in six of the
months enabling the Partnership to keep losses for the year at a moderate level.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1995. During 1995, the
Partnership recorded profits of 25.4% to finish the year at a Net Asset Value
per Unit of $1,699.44.
In January, the Partnership posted losses primarily as a result of trading
in the currencies markets. Smaller losses were the result of erratic price
movement in global interest rate futures prices. During February and March the
Partnership recorded strong gains as both U.S. and international bond futures
prices increased, resulting in gains for the Partnership's long global interest
rate futures positions. Additional gains were recorded from an increase in the
value of most major European currencies and the Japanese yen relative to the
U.S. dollar.
During April, the Partnership's long positions in the Japanese yen continued
to be profitable as the value of the yen moved higher. Global bond futures
prices continued their upward trend, resulting in gains. Smaller gains were
recorded from long crude oil positions as prices in this market also moved
higher. During May, the Partnership recorded flat performance as gains from long
positions in global bond and S&P 500 index futures were offset by losses in
currencies and commodities. In June, the Partnership recorded net losses as
international bond futures retreated from their previous upward move. Smaller
losses were recorded in currencies.
During July, the Partnership recorded losses primarily as a result of
trading in the financial futures markets. Smaller losses were recorded from
trading silver futures. Gains were recorded during August due to a decline in
the value of the Japanese yen. A continued upward move in Japanese stock prices
resulted in additional gains for long Nikkei index futures positions. In
September, the Partnership recorded losses from trading in European bond futures
as prices experienced choppiness throughout the month. In currency trading, a
sharp and sudden increase in the value of most major European currencies
relative to the U.S. dollar on September 20 and 21 resulted in losses.
The Partnership recorded profits during October from currency trading, as a
decline in the value of the Japanese yen resulted in profits for the
Partnership's short yen positions. In other markets, smaller gains were recorded
in U.S. Treasury bond and gold futures. During November, the Partnership's long
positions in European interest rate futures profited from upward price movement.
Additional gains
29
<PAGE>
were recorded from U.S. and Japanese interest rate futures trading. The
Partnership concluded the year profitably as a continued upward price trend in
global bond futures prices resulted in gains. In energy futures, long positions
in crude oil profited from rising prices during the month.
Overall, the Partnership recorded strong profits during 1995 due primarily
to trading in financial futures and currencies, as price trends in each of these
sectors provided profit opportunities for the Trading Advisor's technical
trend-following programs.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1996. During 1996, the
Partnership recorded profits of 25.5% to finish the year at a Net Asset Value
per Unit of $2,132.79.
The Partnership began the year by posting profits during January from short
positions in most major currencies as the value of these currencies declined
versus the U.S. dollar. Additional gains were recorded from long global
financial futures positions as prices moved higher. In February losses were
recorded as a result of trend reversals in the currency markets, as the value of
most major currencies moved sharply higher versus the U.S. dollar, and in global
interest rate futures, as a sudden downward price move was experienced. The
Partnership finished the first quarter by recording profits primarily from long
Australian dollar positions as its value moved higher versus other world
currencies. Additional gains were recorded from short Japanese yen positions, as
its value declined versus the U.S. dollar, as well as from trading financial and
energy futures.
In April, the Partnership recorded gains in currencies from short Swiss
franc and German mark positions as the value of these currencies moved lower
versus the U.S. dollar. Gains were also recorded from long positions in energy
and agricultural futures as prices in these markets increased. During May, the
Partnership experienced losses due primarily to trendless price movement in
global financial futures. Smaller losses were recorded in the energy markets as
a portion of April's profits was given back due to a downward price move. In
June, the Partnership recorded gains due primarily to short positions in metals
as prices declined during the month. Gains were also recorded from short
Japanese yen positions as its value moved lower versus the U.S. dollar.
The profits recorded during June were offset during July as losses were
recorded from short Japanese yen positions as its value increased sharply
relative to other world currencies. In August, small losses were experienced due
primarily to short-term volatility in the value of most major currencies
relative to the U.S. dollar. A majority of these losses were offset by gains
recorded gains as long global bond futures positions profited from an upward
price move. Additional gains were recorded from positions in energies, metals
and agricultural commodities.
During the fourth quarter, the Partnership profited significantly due
primarily to long global bond futures positions as prices continued to trend
higher during October and November. Additional gains were recorded in currencies
from long British pound positions as its value also moved higher. Smaller
currency gains were recorded from short Japanese yen and Swiss franc positions
as the value of these currencies declined versus the U.S. dollar. A portion of
these gains was offset by losses during December as a result of a sudden
reversal lower in global bond futures prices early in the month. Losses in this
sector were relatively small compared to previous months' profits as long
positions in these markets (U.S., European, and Japanese bond futures) had been
reduced in early December. Smaller losses were recorded from short-term
volatility in currencies.
To enhance the foregoing discussion of results of operations, prospective
investors can examine, line by line, the Partnership's Statements of Operations
and Statements of Financial Condition in its financial statements herein. Total
trading results were profitable in each of 1994, 1995, and 1996 (although the
Partnership incurred a net loss in 1994).
INTEREST INCOME AND EXPENSES. Interest income to the Partnership is derived
from 80% of its assets earning interest at the prevailing rate paid on U.S.
Treasury bills. The size of the assets and the fluctuation of interest rates
affect the resulting interest income annual totals. Increasing interest rates in
1994 resulted in significantly higher interest income to the Partnership over
1993. In 1995, the
30
<PAGE>
increase in asset size was the primary reason for an increase in interest income
to the Partnership. Interest income to the Partnership decreased during 1996
when compared to 1995 as a result of a modest reduction in U.S. Treasury bill
rates, as well as a decrease in the Partnership's assets.
In regard to expenses to the Partnership, brokerage commissions and
transaction fees and costs charged fluctuate based on the volume of trading by
the Partnership's Trading Advisors. In 1994, brokerage commissions and
transaction fees and costs decreased from 1993 as a result of a corresponding
decrease in trading volume by the Partnership. Brokerage commissions and
transaction fees and costs only slightly fluctuated in 1995 as compared to 1994.
During 1996, brokerage commissions and transaction fees and costs charged to the
Partnership in the aggregate increased relative to 1995 due to an increase in
trading volume. Effective September 1, 1996, commissions, together with the
transaction fees and costs described below, have been capped at 13/20 of 1% per
month (a maximum 7.8% annual rate; this represents a reduction from the prior
cap of 3/4 of 1% per month, or 9% annually, which cap did not include
transaction fees and costs) of the Partnership's Net Assets at month-end
(determined before redemptions and distributions as of the end of such month).
Management fees to the Partnership are charged at a 4% annualized rate of
Net Assets and fluctuate based only on the size of Net Assets. Management fees
have decreased each year since 1993 as a result of decreasing Net Assets.
Incentive fees are paid on a quarterly basis or on any redeemed Units on a
monthly basis if the Partnership is profitable. In 1994, incentive fees
decreased from 1993 as a result of a decline in trading performance. In 1995,
incentive fees again increased as a result of increased trading performance.
Incentive fees charged to the Partnership during 1996 increased relative to 1995
due to continued profitable performance of the Partnership.
Administrative expenses to the Partnership are costs and expenses used to
pay legal, accounting, auditing, printing and distribution costs and are capped
at 0.25% per annum. These expenses on a gross basis have decreased over time as
a result of reduced printing and other administrative costs. Bank fees were paid
by the Partnership on a quarterly basis at a rate of 1% of new appreciation in
the Partnership through July 31, 1996. In 1994, bank fees decreased from 1993 as
a result of a decline in trading performance. Bank fees increased in 1995 as a
result of increased trading performance. Bank fees for 1996 decreased relative
to 1995 due to a decline in trading performance through July. As of July 31,
1996, such fees are no longer being charged to the Partnership due to the
maturity of the Partnership's Letter of Credit arrangement.
See "Selected Financial Data" and "Independent Auditors' Report and
Financial Statements of Dean Witter Portfolio Strategy Fund L.P." herein.
FINANCIAL INSTRUMENTS. The Partnership is a party to financial instruments
with elements of off-balance sheet market and credit risk. The Partnership
trades futures, options, and forward contracts in interest rates, stock indices,
commodities, currencies, petroleum and precious metals. In entering into these
contracts, there exists a risk to the Partnership (market risk) that such
contracts may be significantly influenced by market conditions, such as interest
rate volatility, resulting in such contracts being less valuable. If the markets
should move against all of the futures interests positions held by the
Partnership at the same time, and if the Trading Advisor were unable to offset
futures interests positions of the Partnership, the Partnership could lose all
of its assets and the Limited Partners would realize a 100% loss. In addition to
the internal controls of the Trading Advisor, the Trading Advisor must be in
compliance with the Trading Policies of the Partnership. Such Trading Policies
include standards for liquidity and leverage with which the Partnership must
comply. The Trading Advisor and the General Partner monitor the Partnership's
trading activities to ensure compliance with the Trading Policies. See
"Investment Program, Use of Proceeds and Trading Policies--Trading Policies."
The General Partner may (under the terms of the Management Agreement) require
the Trading Advisor to modify positions of the Partnership if the General
Partner believes they violate the Partnership's Trading Policies.
In addition to market risk, in entering into futures, options 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
31
<PAGE>
Partnership. The ultimate counterparty of the Partnership for futures contracts
traded in the United States and most foreign exchanges on which the Partnership
trades is the clearinghouse associated with such exchange. In general, a
clearinghouse is backed by the membership of the exchange and will act in the
event of non-performance by one of its members or 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
contracts with a counterparty, the sole recourse of the Partnership will be the
clearinghouse, the exchange member or the off-exchange contract counterparty, as
the case may be. For a list of the foreign exchanges on which the Partnership
currently trades, see "Investment Program, Use of Proceeds and Trading Policies"
on page 41. For an additional discussion of the credit risks relating to trading
on foreign exchanges, see "Risk Factors -- Risks Relating to Futures Interests
and the Futures Interest Markets -- Special Risks Associated with Trading on
Foreign Exchanges."
DWR, in its business as an international commodity broker and as a member of
various futures exchanges, monitors the creditworthiness of the exchanges and
clearing members of the foreign exchanges with which it does business for
clients, including the Partnership. DWR employees also from time to time serve
on supervisory or management committees of such exchanges. If DWR believed that
there were a problem with the creditworthiness of an exchange on which the
Partnership deals, it would so advise the General Partner. With respect to
exchanges of which DWR is not a member, DWR acts only through clearing brokers
it has determined to be creditworthy. If DWR believed that a clearing broker
with which it deals on behalf of clients were not creditworthy, it would
terminate its relationship with such broker.
While DWR monitors the creditworthiness and risks involved in dealing on the
various exchanges (and their clearinghouses) and with other exchange members,
there can be no assurance that an exchange (or its clearinghouse) or other
exchange member will be able to meet its obligations to the Partnership. DWR has
not undertaken to indemnify the Partnership against any loss. Further, the law
is unclear, particularly with respect to trading in various non-U.S.
jurisdictions, as to whether DWR has any obligation to protect the Partnership
from any liability in the event that an exchange or its clearinghouse or another
exchange member defaults on its obligations on trades effected for the
Partnership.
Although DWR monitors the creditworthiness of the foreign exchanges and
clearing brokers with which it does business for clients, DWR does not have the
capability to precisely quantify the Partnership's exposure to risks inherent in
its trading activities on foreign exchanges, and, as a result, the risk is not
monitored by DWR on an individual client basis (including the Partnership). In
this regard, DWR must clear its customer trades through one or more other
clearing brokers on each exchange where DWR is not a clearing member. Such other
clearing brokers calculate the net margin requirements of DWR in respect of the
aggregate of all of DWR's customer positions carried in DWR's omnibus account
with that clearing broker. Similarly, DWR calculates a net margin requirement
for the exchange-traded futures positions of each of its customers, including
the Partnership. Neither DWR nor DWR's respective clearing brokers on each
foreign futures exchange calculates the margin requirements of an individual
customer, such as the Partnership, in respect of the customer's aggregate
contract positions on any particular exchange.
With respect to forward contract trading, the Partnership trades with only
those counterparties which the General Partner, together with DWR, have
determined to be creditworthy. As set forth in the
32
<PAGE>
Partnership's Trading Policies, in determining creditworthiness, the General
Partner and DWR consult with the Corporate Credit Department of DWR. Currently,
the Partnership deals only with DWR as its counterparty on forward contracts.
At December 31, 1996, open futures and forward contracts were:
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
-----------------
$
<S> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures:
Commitments to Purchase.................................................. 65,197,000
Commitments to Sell...................................................... 70,325,000
Commodity Futures:
Commitments to Purchase.................................................. 5,005,000
Commitments to Sell...................................................... 30,977,000
Foreign Futures:
Commitments to Purchase.................................................. 42,509,000
Commitments to Sell...................................................... 67,755,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS
Commitments to Purchase.................................................. 89,146,000
Commitments to Sell...................................................... 38,531,000
</TABLE>
A portion of the amounts indicated as off-balance sheet risk in forward
currency contracts is due to offsetting forward commitments to purchase and to
sell the same currency on the same date in the future. These commitments are
economically offsetting, but are not offset in the forward market until the
settlement date.
The net unrealized gain on open contracts is reported as a component of
"Equity in Commodity futures trading accounts" on the Statement of Financial
Condition and totaled $3,053,880 at December 31, 1996. Of this amount,
$3,465,469 related to exchange-traded futures contracts and $(411,589) related
to off-exchange-traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31,
1996 mature through December 1997. Off-exchange-traded forward currency
contracts held by the Partnership at December 31, 1996 mature through March
1997.
The Partnership also has credit risk because DWR acts as the futures
commission merchant or the sole counterparty, with respect to most of the
Partnership's assets. Exchange-traded futures contracts are marked to market on
a daily basis, with variations in value settled on a daily basis. DWR, as the
futures commission merchant for all of the Partnership's exchange-traded futures
contracts, is required, pursuant to regulations of the CFTC, to segregate from
its own assets and for the sole benefit of its commodity customers, all funds
held by DWR with respect to exchange-traded futures contracts, including an
amount equal to the net unrealized gain on all open futures contracts, which
totaled $91,312,827 at December 31, 1996. With respect to the Partnership's
off-exchange-traded forward currency contracts, there are no daily settlements
of variations in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated. With respect to
those off-exchange-traded contracts, the Partnership is at risk to the ability
of DWR, the counterparty on all such contracts, to perform.
For the year ended December 31, 1996, the average fair value of financial
instruments held for trading purposes was as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
-------------- --------------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures.......................................... 102,149,000 96,292,000
Commodity Futures.......................................... 13,649,000 28,690,000
Foreign Futures............................................ 116,142,000 42,572,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 113,353,000 134,819,000
</TABLE>
Inflation has not been, and is not expected to be, a major factor in the
Partnership's operations.
33
<PAGE>
DESCRIPTION OF CHARGES TO THE PARTNERSHIP
The Partnership is subject to substantial charges, all of which, including
any cap on such charges, are described in detail below (the 13/20 of 1% of Net
Assets monthly cap on aggregate brokerage commissions and transaction fees and
costs became effective on September 1, 1996, and represents a reduction from
prior caps on such charges).
<TABLE>
<CAPTION>
FORM OF AMOUNT OF
RECIPIENT COMPENSATION COMPENSATION
- ------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
The Trading Advisor Monthly Management Fee. A flat rate of 1/3 of 1% of Net Assets as
of the last day of each month (a 4%
annual rate).
Quarterly Incentive Fee. 15% of the Trading Profits experienced as
of the end of each calendar quarter.
The Commodity Brokerage Commissions. Roundturn commissions (the total costs for
Broker both the opening and liquidating of a
futures interest) at 80% of DWR's
published non-member rates (which is
equal to an average of approximately
$75), which commissions (together with
the transaction fees and costs de-
scribed below) are capped at (i) 13/20
of 1% per month (a maximum 7.8% annual
rate) of the Partnership's Net Assets as
of the last day of each month, with such
cap applied separately on a per trading
system basis; and (ii) 14% annually of
the Partnership's average monthly Net
Assets, aggregated with net excess
interest and compensating balance
benefits, as described below.
Transaction charges for providing forward Forward contract fees average $3-$6 per
trading facilities, the execution of roundturn trade, charges for execution
forward contract transactions, the of cash contract transactions relating
execution of cash contract transactions to EFP transactions are approximately
relating to exchange of futures for $2.50 per cash contract, and charges for
physicals ("EFP") transactions, and the the use of the institutional trading
use of DWR's institutional and overnight desk or overnight execution facility are
execution facilities. up to $3 per roundturn (the amount of
such charges is included in the
transaction fees described below under
"Other" and is subject to the caps
described therein).
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
FORM OF AMOUNT OF
RECIPIENT COMPENSATION COMPENSATION
- ------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
Financial benefit to Commodity Broker from The aggregate of (i) brokerage com-
interest earned on the Partnership's missions and transaction fees and costs
assets in excess of the interest paid to payable by the Partnership, as described
the Partnership and from compensating above and below, and (ii) net excess
balance treatment in connection with its interest and compensating balance
designation of a bank or banks in which benefits to DWR (after crediting the
Partnership assets are deposited. Partnership with interest) are capped at
14% annually of the Partnership's
average monthly Net Assets as of the
last day of each month during a calen-
dar year.
Other Ordinary administrative expenses Ordinary administrative expenses, which
(including legal, accounting, and have been equal to 0.15% of the
auditing expenses, and expenses of Partnership's average annual Net Assets
printing and distributing reports) and since inception, are capped at 0.25% per
all extraordinary expenses of the year of the Partnership's average
Partnership. monthly Net Assets as of the last day of
each month. Extraordinary expenses
cannot be estimated and are not subject
to any cap.
All transaction fees and costs incurred in Transaction fees and costs, which have
connection with the Partnership's been equal to 0.31% of the Partnership's
futures interests trading activities average annual Net Assets since
(including floor brokerage fees, inception, are included in (i) the cap
exchange fees, clearinghouse fees, NFA on brokerage commissions; and (ii) the
fees, "give up" or transfer fees (fees cap on aggregate brokerage commissions
charged by one clearing brokerage firm and net excess interest and compensat-
to transfer a trading position to ing balance benefits, each as described
another clearing firm), and any costs above.
associated with taking delivery of
futures interests).
</TABLE>
1. THE TRADING ADVISOR
(a) MONTHLY MANAGEMENT FEE. The Partnership pays the Trading Advisor a
monthly management fee equal to 1/3 of 1% (a 4% annual rate) of Net Assets (as
defined herein on page 101) on the last day of each month (before deduction for
the management fees, any accrued incentive fees and any redemptions,
distributions, or reallocations). For example, if Net Assets were $30,000,000 as
of the end of each month during a year, the Trading Advisor would receive an
aggregate monthly management fee for the year of $1,200,000 (1/3 of 1% of
$30,000,000 per month, or $100,000 times 12). Since inception, management fees
have averaged 4.07% per year of the Partnership's average month-end Net Assets.
For the fiscal year 1996 management fees equaled $3,281,267.
If during any month the Partnership suspends trading operations or the
Partnership does not conduct business operations, or, as a result of an act or
material failure to act by the Trading Advisor, the Trading Advisor does not
provide its services on any trading day, then the management fee payable to the
Trading Advisor will be prorated based on the ratio that the number of trading
days in the month in which the Partnership engaged in trading operations or, as
appropriate, in which the Trading Advisor provided its services bears to the
total number of trading days in such month.
35
<PAGE>
If the Management Agreement is terminated on a date other than the end of a
calendar month, the management fee described above will be determined as if such
date were the end of a month, but such fee will be prorated based on the ratio
by which the number of trading days in the month through the date of termination
bears to the total number of trading days in the month.
(b) QUARTERLY INCENTIVE FEE. The Partnership pays an incentive fee equal
to 15% of the Trading Profits as of the end of each calendar quarter, as
qualified below. "Trading Profits" is defined to mean net futures interests
trading profits (realized and unrealized) earned on Net Assets allocated to the
Trading Advisor, including interest income credited to the Partnership by DWR
(see "Investment Program, Use of Proceeds and Trading Policies"), decreased by
monthly management fees, brokerage commissions, floor brokerage fees, "give up"
or transfer fees, NFA fees, other transaction fees and costs, administrative
expenses, and other fees and expenses (excluding incentive fees payable) of the
Partnership; with such Trading Profits and items of decrease determined from the
last date as of which an incentive fee was earned by the Trading Advisor or, if
no incentive fee has been previously earned by the Trading Advisor, from the
date the Partnership commenced trading to the date as of which such incentive
fee calculation is made. Extraordinary expenses of the Partnership, if any, will
not be deducted in determining Trading Profits. Any accrued incentive fees with
respect to any Units redeemed will be deducted and paid to the Trading Advisor
at the time of redemption. Since inception, incentive fees have averaged 2.37%
per year of the Partnership's average month-end Net Assets. For the fiscal year
1996, incentive fees equaled $3,278,840.
If any payment of incentive fees is made to the Trading Advisor on account
of Trading Profits earned by the Partnership and the Trading Advisor thereafter
fails to earn Trading Profits or experiences losses for any subsequent calendar
quarter, the Trading Advisor will be entitled to retain such amounts of
incentive fees previously paid to the Trading Advisor in respect of such Trading
Profits. However, no incentive fees will be payable to the Trading Advisor for
subsequent calendar quarters until Trading Profits have been earned by the
Partnership; PROVIDED, HOWEVER, that if Net Assets are reduced or increased
because of redemptions, distributions, reallocations or subscriptions that occur
at the end of, or subsequent to, a month in which the Trading Advisor
experiences a futures interests trading loss, the trading loss that must be
recovered before the Net Assets allocated to the Trading Advisor will be deemed
to experience Trading Profits will be increased or reduced proportionately.
Thus, for example, if the Trading Advisor earned Trading Profits of
$1,000,000 for the quarter ended March 31, the Trading Advisor would receive an
incentive fee of $150,000 for that period. If, however, the Trading Advisor
experiences realized and/or unrealized trading losses, or fees and expenses
which offset trading profits, so as to result in a $250,000 loss for the quarter
ended June 30, no incentive fee will be paid to the Trading Advisor for that
period. If the Trading Advisor is to earn an incentive fee for the quarter ended
September 30, the Trading Advisor will have to earn profits exceeding $250,000
on behalf of the Partnership for that period, since the incentive fee is payable
measured from the last calendar quarter as of which an incentive fee was paid
(I.E., March 31), and not the immediately preceding calendar quarter. For the
calendar quarter ended September 30, Trading Profits would be equal to the
amount of profits in excess of $250,000. The Trading Advisor would receive an
incentive fee for such quarter equal to 15% of such Trading Profits. (The
foregoing examples assume no redemptions, reallocations or additional purchases
of Units during the periods in question, which would require adjustments as
described above.)
36
<PAGE>
To ensure that all existing and new Units are treated the same with respect
to the calculation and payment of incentive fees, and to induce the Trading
Advisor to accept certain changes to the incentive fee provisions adverse to the
Trading Advisor, the General Partner and the Trading Advisor have agreed to
amend the incentive fee provisions of the Management Agreement, effective on the
date of the Closing. First, so as not to disadvantage existing investors in the
event there is a "loss" at the time of the Closing which must be recovered
through Trading Profits before an incentive fee would be paid, the "loss" will
be increased proportionately (as described above) based upon the Partnership's
funds immediately after the Closing as compared to the Partnership's funds
immediately prior to the Closing. Second, in consideration of the Trading
Advisor's willingness to accept such an increase in any "loss" which must be
recovered before it can receive an incentive fee, and to ensure that all
existing and new Units are treated the same with respect to the calculation and
payment of incentive fees, the General Partner and Trading Advisor agreed to
further amend the incentive fee provisions to provide that if the Closing is as
of the first business day after a month-end that is not the end of a calendar
quarter, and if at the Closing an incentive fee has accrued on Trading Profits,
the accrued incentive fee will become due and be paid to the Trading Advisor on
such closing date even if it does not coincide with the end of a calendar
quarter. The only disadvantage to Limited Partners from these changes is that,
if an accrued incentive fee on Trading Profits is paid at the end of a month
that is not the end of a calendar quarter and the Partnership thereafter loses
such Trading Profits before the end of that calendar quarter, an incentive fee
would have been paid during that quarter that otherwise would not have been paid
during that period. This would adversely affect a Limited Partner only if the
Partnership never earned Trading Profits to recover such losses, or if a Limited
Partner redeemed his Units before the losses were recovered. The General Partner
believes that the overall advantages to the Limited Partners of the amendments
outweigh this disadvantage.
If the Management Agreement is terminated as of any date which is not the
end of a calendar quarter, the incentive fee described above, if applicable,
will be determined and paid as if such termination date were at the end of a
calendar quarter. See "The Management Agreement."
2. DEAN WITTER REYNOLDS INC.
(a) BROKERAGE COMMISSIONS. The Partnership pays DWR brokerage commissions
at a roundturn rate (covering both the taking and liquidation of a position) of
80% of DWR's published non-member rates for speculative accounts (which, for the
futures interests to be traded by the Partnership, is equal to an average of
$75). Effective September 1, 1996, commissions, together with the transaction
fees and costs described below, have been capped at 13/20 of 1% per month (a
maximum 7.8% annual rate; this represents a reduction from the prior cap of 3/4
of 1% per month, or 9% annually, which cap did not include transaction fees and
costs) of the Partnership's Net Assets at month-end (determined before
redemptions and distributions as of the end of such month) applied separately on
a per trading system basis. In addition, the aggregate of (i) brokerage
commissions and transaction fees and costs payable by the Partnership, and (ii)
the net excess interest and compensating balance benefits to DWR (after
crediting the Partnership with interest) cannot exceed 14% annually of the
Partnership's average month-end Net Assets during each calendar year. Since
inception, brokerage commissions have averaged 3.90% per year of the
Partnership's average month-end Net Assets. For the fiscal year 1996, brokerage
commissions equaled $3,416,583. The Partnership pays 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. In the case of currency futures
contracts traded on United States exchanges, the Partnership pays DWR brokerage
commissions at the rate described above.
Although the rate being charged to the Partnership is 80% of DWR's published
non-member rates for speculative accounts, most customers of DWR who have over
$1,000,000 in futures interests accounts with DWR pay commissions at negotiated
rates which are substantially less than the rate paid by the Partnership,
notwithstanding the caps described above. Other customers of DWR may pay
37
<PAGE>
brokerage commissions at rates which are substantially lower or which are higher
than the rates that the Partnership pays, and other commodity brokerage firms
may offer lower rates to accounts the size of the Partnership's account.
However, the General Partner believes that the brokerage commissions charged to
the Partnership are less than the brokerage rates charged certain other public
commodity pools.
DWR paid all of the costs (aggregating approximately $900,000) incurred in
connection with the organization of the Partnership and the Initial Offering and
will pay all of the costs incurred in connection with this offering, estimated
to be approximately $900,000 in the aggregate. Such costs include legal,
accounting and auditing fees, printing costs, filing fees, escrow fees,
marketing costs (which include costs relating to sales seminars and the
preparation of customer sales kits and brochures), and other related fees and
expenses. The Partnership has not and will not reimburse DWR for any such
organizational and Initial Offering costs, or the costs of this offering, and
while DWR may recoup the costs of this offering from brokerage commissions paid
by the Partnership, the Partnership will not be liable for any such costs at any
time.
(b) FINANCIAL BENEFITS. DWR benefits from the interest crediting
arrangements and possible compensating balance treatment in connection with its
designation of a bank or banks in which the Partnership's assets are deposited.
See "Investment Program, Use of Proceeds and Trading Policies."
3. OTHER
(a) ADMINISTRATIVE AND EXTRAORDINARY EXPENSES. The Partnership pays its
ordinary administrative expenses. Such expenses include legal, accounting,
auditing, recordkeeping, administration, computer, and clerical 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.
Ordinary administrative expenses have averaged 0.15% per year of the
Partnership's average month-end Net Assets since inception. For the fiscal year
1996, ordinary administrative expenses equaled $27,000. The General Partner or
an affiliate thereof will pay and will not be reimbursed for any such
administrative expenses in excess of 0.25% per year of the Partnership's average
Net Assets (calculated on the basis of the average month-end Net Assets during
each calendar year). The General Partner shall not be reimbursed by the
Partnership for any costs incurred by it relating to office space, equipment,
and staff necessary for Partnership operations and administration of redemptions
of Units. The Partnership is obligated to pay any extraordinary expenses it may
incur. Extraordinary expenses will be determined in accordance with generally
accepted accounting principles, which generally include events that are both
unusual in nature and occur infrequently. For the period February 1991 through
December 1996, no extraordinary expenses were paid by the Partnership.
(b) TRANSACTION FEES AND COSTS. The Partnership pays separately for all
floor brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give up" or
transfer fees, any costs associated with taking delivery of futures interests,
fees for the execution of forward contract transactions, the execution of cash
transactions relating to exchange of futures for physicals ("EFP") transactions,
and the use of DWR's institutional and overnight execution facilities
(collectively, "transaction fees and costs"). The Partnership pays DWR a fee for
each forward contract, which averages between $3 and $6 per roundturn contract,
depending upon the size of the trades. DWR does not charge the Partnership a
mark-up or spread (a charge over the price at which DWR obtained the position
for its own account) on such forward trading. DWR charges a transaction fee of
approximately $2.50 for each cash contract transaction relating to an EFP
transaction, and a transaction fee for the use of the institutional execution
desk or overnight execution facilities which may be up to $3 per roundturn.
Since inception, transaction fees and costs averaged 0.31% per year of the
Partnership's average month-end Net Assets. Such percentage could be
significantly higher and may be lower, depending on the Partnership's trading
activity and the types of trades executed by the Trading Advisor. For the fiscal
year 1996, transaction fees and costs equaled $233,900. Effective September 1,
1996, the aggregate transaction fees and costs and brokerage commissions
incurred by the Partnership have been capped at 13/20 of 1% per month (a
38
<PAGE>
maximum 7.8% annual rate) of the Partnership's month-end Net Assets applied
separately on a per trading system basis. In addition, these fees and costs are
subject to the 14% annual cap on aggregate brokerage commissions, transaction
fees and costs, and net excess interest and compensating balance benefits to
DWR, described under "--2. Dean Witter Reynolds Inc.--(a) Brokerage Commissions"
above.
As long as redemption charges are imposed, as described under "Redemptions,"
the management fee, incentive fee and caps on brokerage commissions, transaction
fees and costs, ordinary administrative expenses, and net excess interest and
compensating balance benefits may not be increased. Thereafter, none of such
fees and caps may be increased unless Limited Partners are given prior notice
thereof (including a description of redemption and voting rights of Limited
Partners) and an opportunity to redeem their Units. Notwithstanding the
foregoing, in accordance with guidelines applied by certain state securities
regulators (see "Glossary--Blue Sky Glossary"), the Partnership's fees and
expenses are subject to the following limits: (a) the aggregate of (i) the
management fees payable by the Partnership, and (ii) the Partnership's customary
and routine administrative expenses (other than commodity brokerage commissions,
transaction fees and costs, incentive fees, legal and auditing fees and
expenses, and extraordinary expenses), shall not exceed 1/2 of 1% of the
Partnership's Net Assets per month, or 6% of the Partnership's Net Assets
annually; (b) the quarterly incentive fee payable by the Partnership to a
trading advisor for the Partnership shall not exceed 15% of the Partnership's
Trading Profits (as defined herein), PROVIDED that such incentive fee may be
increased by 2% for each 1% by which the aggregate fees and expenses described
in clause (a) of this sentence are limited below the 6% of Net Assets annual
limit thereon (I.E., if such fees and expenses are limited to 4% of Net Assets,
the maximum incentive fee payable may be increased to 19%); (c) the brokerage
commissions (excluding transaction fees and costs) payable by the Partnership to
DWR or any other commodity broker for the Partnership shall not exceed 80% of
DWR's or such other commodity broker's published non-member rates for
speculative accounts; and (d) the aggregate of (i) the brokerage commissions
payable by the Partnership to DWR or any other commodity broker for the
Partnership, (ii) the transaction fees and costs payable by the Partnership, and
(iii) the net excess interest and compensating balance benefits to DWR or any
other commodity broker for the Partnership (after crediting the Partnership with
interest, as described herein), shall not exceed 14% annually of the
Partnership's average monthly Net Assets as of the last day of each month during
each calendar year. The General Partner or an affiliate thereof will pay any
fees and expenses in excess of any such limits.
The foregoing commissions, fees, costs and expenses may equal a significant
percentage of the annual average Net Assets of the Partnership. Based on the
foregoing fees and expenses of the Partnership, the Partnership will be required
to earn estimated annual net trading profits (after taking into account
estimated interest income based upon current rates of 5%) of 5.71% per year of
its average annual Net Assets in order to avoid depletion or exhaustion of its
assets. This assumes that the Trading Advisor's gross profits equal expenses
such that no incentive fees are earned by the Trading Advisor, and results from
the fact that in calculating management fees, accrued management fees are not
deducted from Net Assets.
4. BREAK EVEN ANALYSIS
Based upon the annual fees and expenses of the Partnership, the Partnership
will be required to earn estimated annual net trading profits (after taking into
account estimated interest income) of 9.35% per year of its average annual Net
Assets in order for a Limited Partner to pay the redemption charge and to recoup
its initial investment upon redemption after one year.
39
<PAGE>
Based upon the Net Asset Value per Unit as of December 31, 1996, the
Partnership must earn estimated annual net trading profits of $199.31 per Unit,
in order for a Limited Partner to recoup its initial investment upon redemption
of a Unit after one year after payment by the Partnership of its expenses and
payment of the 3% redemption charge (as calculated below).
<TABLE>
<S> <C>
Net Asset Value per Unit (as of 12/31/96)(1)..................................... $2,132.79
Management Fee(2)................................................................ 88.87
Brokerage Commissions(3)......................................................... 101.54
Administrative Expenses(4)....................................................... 5.33
Transaction Fees and Costs(5).................................................... 11.28
Redemption Fee(6)................................................................ 65.96
Incentive Fee(7)................................................................. 11.64
Less: Interest Income(8)......................................................... 85.31
Amount of Trading Income Required for a Limited Partner to Recoup its Investment
at the End of One Year......................................................... 199.31
Percentage of Net Asset Value per Unit........................................... 9.35%
</TABLE>
- ------------------------
NOTES
(1) Units of the Partnership are offered for sale at a purchase price equal to
100% of the Net Asset Value of the Unit as of the close of business on the
last day of the month immediately preceding the Closing.
(2) Monthly management fees are equal to 1/3 of 1% of the Net Assets on the last
day of each month (a 4% annual rate).
(3) Brokerage commissions have averaged 3.90% per year of the Partnership's
average month-end Net Assets since inception of trading. Brokerage
commissions are charged at a roundturn rate of 80% of DWR's published
non-member rates for speculative accounts (which for futures interests to be
traded by the Partnership is equal to an average of $75). Effective
September 1, 1996, aggregate commissions and transaction fees and costs have
been capped at 13/20 of 1% per month (a maximum 7.8% annual rate) of the
Partnership's Net Assets at month-end applied separately on a per trading
system basis. For purposes of the above table, brokerage commissions were
assumed to be 4.76%, based upon the historical expenses of the Trading
Advisor's trading systems to which the Partnership's assets are expected to
be allocated as of the Closing.
(4) Administrative expenses have averaged 0.15% per year of the Partnership's
average month-end Net Assets since inception of trading. Administrative
expenses in excess of 0.25% per year of the Partnership's average month-end
Net Assets will be paid by the General Partner or an affiliate thereof and
will not be reimbursed by the Partnership. For purposes of the above table,
administrative expenses were assumed to be 0.25%.
(5) Transaction fees and costs have averaged 0.31% per year of the Partnership's
average month-end Net Assets since inception of trading. Effective September
1, 1996, aggregate transaction fees and costs and brokerage commissions have
been capped at 13/20 of 1% per month of the Partnership's month-end Net
Assets, applied on a per trading system basis, allocated to each such
trading system. For purposes of the above table, transaction fees and costs
were assumed to be 0.53%, based upon the historical expenses of the Trading
Advisor's trading systems to which the Partnership's assets are expected to
be allocated as of the Closing.
(6) Units redeemed at the end of one year from the date of purchase are subject
to a 3% redemption charge.
(7) Incentive fees have been determined by assuming (i) interest income will be
credited in the manner described in note (8) below (and will exceed the
redemption fee), and (ii) the Trading
40
<PAGE>
Advisor's profits from futures interests trading will equal all of the other
fees and expenses reflected in this table (I.E., the only "Trading Profits"
on which incentive fees will be payable are from interest income).
(8) Effective on the day of the Closing, DWR will credit the Partnership at each
month-end with interest income as if 80% of the Partnership's average daily
Net Assets for the month were invested at a prevailing rate on U.S. Treasury
Bills. Such rate was estimated at 5% for purposes of the calculation.
The General Partner will furnish to each Limited Partner a monthly statement
describing the performance of the Partnership and setting forth, among other
things, aggregate management and incentive fees, brokerage commissions,
transaction fees and costs, administrative expenses, and other fees and expenses
incurred or accrued by the Partnership during the month and certain other
information. See "The Limited Partnership Agreement--Reports to Limited
Partners."
INVESTMENT PROGRAM, USE OF PROCEEDS AND TRADING POLICIES
The Partnership is a Delaware limited partnership, formed in August 1990 to
engage primarily in the speculative trading of futures interests. The entire
proceeds of this offering of Units and the capital contribution of the General
Partner will be deposited in the Partnership's accounts maintained with DWR, and
all of such proceeds will be allocated for use by the Partnership to engage in
futures interests trading pursuant to instructions provided by the Trading
Advisor. The Partnership may trade up to 75 different types of futures
interests, on both domestic and foreign markets, and may trade additional
futures interests as determined by the Trading Advisor. The Partnership's margin
commitments with respect to its U.S. futures positions have ranged, and are
anticipated to range, between 10% and 30% of Net Assets, although in certain
circumstances, the Partnership's margin levels could deviate substantially from
that range in the future. See "Risk Factors--Risks Relating to Futures Interests
Trading and the Futures Interests Markets--Futures Interests Trading is Highly
Leveraged." The Partnership's assets deposited with DWR will be segregated in
accordance with Section 4d(2) of the CEAct and CFTC regulations. From time to
time in connection with foreign currency contracts and foreign futures and
options contracts, the Partnership's assets may be deposited in accounts with
non-United States banks and foreign brokers, which are segregated on the books
of such banks or brokers for the benefit of DWR customers. The Partnership
currently trades from time to time on the following foreign futures exchanges:
the Deutsche Terminboerse, the Hong Kong Futures Exchange Ltd., the
International Petroleum Exchange of London, the London International Financial
Futures Exchange Ltd., the London Metals Exchange, the Marche a Terme
International de France, the Montreal Exchange, the Sydney Futures Exchange, the
Singapore International Monetary Exchange, the Tokyo International Financial
Futures Exchange and the Tokyo Stock Exchange. All such non-United States banks
and foreign brokers will be qualified depositories pursuant to relevant CFTC
Advisories. Such non-United States banks will be subject to the local bank
regulatory authorities and the foreign brokers will be members of the exchanges
on which the futures and option trades are to be executed and will be subject to
the regulatory authorities in the jurisdictions in which they operate. The
protections provided by such foreign regulatory authorities may differ
significantly from those provided by United States regulators. See "Risk
Factors--Risks Relating to Futures Interests Trading and the Futures Interests
Markets--Special Risks Associated with Forward Trading" and "--Special Risks
Associated with Trading on Foreign Exchanges."
The Trading Advisor for the Partnership is John W. Henry & Company, Inc.
("JWH"). Subject to certain limitations, the Trading Advisor has authority and
responsibility for independently directing the investment and reinvestment in
futures interests of Net Assets. See "The Management Agreement." Since the
primary purpose of the Partnership is to achieve appreciation of its assets
through speculative trading in futures interests, the Partnership's ability to
succeed in that endeavor depends upon the success of the Trading Advisor's
trading programs.
41
<PAGE>
The assets of the Partnership will be traded pursuant to technical trading
programs developed by the Trading Advisor. See "The Trading Advisor--Description
of JWH's Trading Approach." See also "General Description of Trading
Approaches."
The Trading Advisor is obligated to invest in accordance with the
Partnership's trading policies. These trading policies provide, among other
things, that the Trading Advisor may commit as margin up to, but no more than, a
certain percentage of funds under management. See "Trading Policies" below. The
General Partner, upon agreement with the Trading Advisor, which shall be at
their collective discretion, may reallocate the Partnership's funds among the
Trading Advisor's various trading programs.
Effective on the day of the Closing, DWR will credit the Partnership at each
month-end with interest income as if 80% of the Partnership's average daily Net
Assets for the month were invested at a prevailing rate for U.S. Treasury Bills.
All of such funds will be available for margin for the Partnership's trading.
For the purpose of such interest payments, Net Assets do not include monies due
to the Partnership 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 Partnership's funds will either be invested together with
other customer segregated funds or will be held in non-interest-bearing bank
accounts. In either case, the Partnership will be credited with interest at the
rate earned by DWR on its U.S. Treasury Bill investments with customer
segregated funds (as if 80% of the Partnership's assets were invested in U.S.
Treasury Bills); DWR will retain any interest earned in excess of the interest
paid to the Partnership. To the extent that the assets of the Partnership are
held in non-interest-bearing bank accounts, DWR or its affiliates will benefit
from compensating balance treatment in connection with DWR's designation of a
bank or banks in which the Partnership's assets are deposited, I.E., DWR or its
affiliates will receive favorable loan rates from such bank or banks by reason
of such deposits. It is not possible to quantify compensating balance benefits
at present; however, while it is anticipated that such benefits will exceed the
interest required to be credited to the Partnership, it is estimated that they
should not exceed 4% of the Partnership's annual average Net Assets after such
credits. To the extent that such benefits to DWR exceed the interest DWR is
obligated to credit to the Partnership, they will not be shared with the
Partnership. Notwithstanding the foregoing, the aggregate of (i) brokerage
commissions and transaction fees and costs payable by the Partnership, and (ii)
the net excess interest and compensating balance benefits to DWR or its
affiliates (after crediting the Partnership with interest as described above)
cannot exceed 14% annually of the Partnership's average month-end Net Assets
during each calendar year.
Assets of the Partnership are not commingled with assets of any other
entity. Margin deposits and deposits of assets with a commodity broker do not
constitute commingling.
TRADING POLICIES
Material changes may be made to the following Trading Policies only with the
prior written approval of Limited Partners owning more than 50% of Units then
outstanding. The General Partner will notify the Limited Partners within seven
business days after any material change in the Partnership's Trading Policies so
approved by the Limited Partners.
1. The Trading Advisor will trade only in those futures interests that have
been approved by the General Partner. The Partnership normally will not
establish new positions in a futures interest for any one contract month or
option if such additional positions would result in a net long or short position
for that futures interest requiring as margin or premium more than 15% of the
Partnership's Net Assets. In addition, the Partnership will, except under
extraordinary circumstances, maintain positions in futures interests in at least
two market segments (I.E. agricultural items, industrial items (including
energies), metal, currencies, and financial instruments (including stock,
financial, and economic indexes)) at any one time.
2. The Partnership will not acquire additional positions in any futures
interest if such additional positions would result in the aggregate net long or
short positions for all futures interests requiring as margin or premium for all
outstanding positions more than 66 2/3% of the Partnership's Net Assets. Under
certain market conditions, such as an abrupt increase in margins required by an
exchange or its
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clearinghouse or an inability to liquidate open positions because of daily price
fluctuation limits or both, the Partnership may be required to commit as margin
amounts in excess of the foregoing limit. In such event, the Trading Advisor
will reduce its open positions to comply with the foregoing limit before
initiating new positions.
3. The Partnership will trade currencies and other commodities in the
interbank and forward contract markets only with banks, brokers, dealers, and
other financial institutions which the General Partner, in conjunction with DWR,
has determined to be creditworthy. In determining the creditworthiness of a
counterparty to a forward contract, the General Partner and DWR will consult
with the Corporate Credit Department of DWR which monitors participants in the
interbank and forward markets with which DWR deals on a regular basis.
4. The Trading Advisor will not generally take a position after the first
notice day in any futures interest during the delivery month of that contract,
except to match trades to close out a position on the interbank foreign currency
or other forward markets or liquidate trades in a limit market.
5. The Partnership will not employ the trading technique commonly known as
"pyramiding," in which the speculator uses unrealized profits on existing
positions in a given futures interest due to favorable price movement as margin
specifically to buy or sell additional positions in the same or a related
futures interest. Taking into account the Partnership's open trade equity on
existing positions in determining generally whether to acquire additional
futures interest positions on behalf of the Partnership will not be considered
to constitute "pyramiding."
6. The Partnership will not purchase, sell, or trade securities (except
securities approved by the CFTC for investment of customer funds). The
Partnership may, however, trade in futures contracts on securities and
securities indexes, options on such futures contracts, and other commodity
options.
7. The Partnership will not under any circumstances lend money to
affiliated entities or otherwise. The Partnership will not utilize borrowings
except if the Partnership purchases or takes delivery of commodities. Use of
lines of credit in connection with its forward trading does not, however,
constitute borrowing for purposes of this trading limitation.
8. The Partnership will not permit "churning" of the Partnership's assets.
9. If the Partnership borrows money, to the extent permitted by Trading
Policy 7, from the General Partner or any "affiliate" thereof (as defined in the
first sentence of Section 14(c) of the Limited Partnership Agreement), the
lending entity in such case (the "Lender") may not receive interest in excess of
its interest costs, nor may the Lender receive interest in excess of the amounts
which would be charged the Partnership (without reference to the General
Partner's financial abilities or guarantees) by unrelated banks on comparable
loans for the same purpose, nor may the Lender or any affiliate thereof receive
any points or other financing charges or fees regardless of the amount.
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CAPITALIZATION
The following table sets forth the capitalization of the Partnership as of
December 31, 1996 and the pro forma capitalization of the Partnership adjusted
to reflect the proceeds (at the Net Asset Value of $2,132.79 per Unit at
December 31, 1996) from the sale during the Offering Period of the maximum
number of Units (45,000) offered by this Prospectus, and (ii) the capital
contribution required of the General Partner based on such capitalization of the
Partnership. There will be no difference insofar as sharing of profits and
losses are concerned between Units of Limited Partnership Interest and Units of
General Partnership Interest:
<TABLE>
<CAPTION>
PRO FORMA(1)
DECEMBER 31, 1996 ----------------
------------------- SALE OF MAXIMUM
OUTSTANDING UNITS
------------------- ----------------
<S> <C> <C>
Limited Partnership Interest(1)..................... $ 85,273,194 $ 191,912,694
General Partnership Interest(2)..................... 2,038,949 2,038,949
------------------- ----------------
Total....................................... $ 87,312,143 $ 193,951,643
------------------- ----------------
------------------- ----------------
</TABLE>
- ------------------------
(1) Units are offered pursuant to this Prospectus at a price per Unit equal to
100% of the Net Asset Value per Unit as of the close of business on the last
day of the month immediately preceding the date of the Closing at which
Units are issued.
(2) The General Partner will contribute an additional amount in cash as is
necessary to make the General Partner's capital contribution at least equal
to the greater of (a) 1% of the aggregate capital contributions to the
Partnership by all Partners (including the General Partner's contribution)
and (ii) $25,000. Such additional contributions by the General Partner will
be evidenced by Units of General Partnership Interest.
THE GENERAL PARTNER
The general partner and commodity pool operator of the Partnership is
Demeter Management Corporation, a Delaware corporation formed on August 18,
1977, to act as a commodity pool operator ("Demeter" or the "General Partner").
Effective in 1977, the General Partner became registered with the CFTC as a
commodity pool operator and is currently a member of the NFA in such capacity.
The General Partner's main business office is located at Two World Trade Center,
62nd floor, New York, New York 10048, telephone (212) 392-8899. The General
Partner and DWR are affiliates in that each company is a wholly-owned subsidiary
of Dean Witter, Discover & Co. ("DWD"), which is a publicly-owned company. DWD,
DWR, and the General Partner, each may be deemed to be a "parent" of the
Partnership within the meaning of the federal securities laws.
The General Partner is or has been the general partner and commodity pool
operator for 23 other publicly offered commodity pools--Dean Witter Reynolds
Commodity Partners ("Commodity Partners"), Columbia Futures Fund ("Columbia"),
Dean Witter Cornerstone Funds I, II, III, and IV (individually, "Cornerstone I,"
"Cornerstone II," "Cornerstone III," and "Cornerstone IV," and collectively, the
"Cornerstone Funds"), Dean Witter Diversified Futures Fund Limited Partnership
("Diversified"), Dean Witter Multi-Market Portfolio, L.P. (formerly Dean Witter
Principal Guaranteed Fund L.P.) ("Multi-Market"), Dean Witter Diversified
Futures Fund II L.P. ("Diversified II"), Dean Witter Principal Guaranteed Fund
II L.P. ("Principal Guaranteed Fund II"), Dean Witter Principal Guaranteed Fund
III L.P. ("Principal Guaranteed Fund III"), Dean Witter Principal Plus Fund L.P.
(including Dean Witter Principal Plus Fund Management L.P., an affiliated pool,
"Principal Plus"), Dean Witter Diversified Futures Fund III L.P. ("Diversified
III"), Dean Witter Select Futures Fund L.P. ("Select"), Dean Witter Global
Perspective Portfolio L.P. ("Global"), Dean Witter World Currency Fund L.P.
("World Currency"), DWFCM International Access Fund L.P. ("DWIAF"), Dean Witter
Spectrum Strategic L.P. ("Spectrum Strategic"), Dean Witter Spectrum Technical
L.P. ("Spectrum Technical"), Dean Witter Spectrum Balanced L.P. ("Spectrum
Balanced"), DWR Chesapeake L.P. ("Chesapeake"), and DWR/JWH Futures Fund
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<PAGE>
L.P. ("DWR/JWH"), plus four other commodity pools which are exempt from certain
disclosure requirements pursuant to CFTC Rule 4.7. The General Partner has
served in such capacities since the inception of Commodity Partners in February
1981 (until its termination in December 1988), the inception of Cornerstone I
(until its termination in December 1991), Cornerstone II, and Cornerstone III in
December 1983, the inception of Cornerstone IV in December 1986, February 1985
for Columbia, the inception of Diversified in November 1987, the inception of
Multi-Market in April 1988, the inception of Diversified II in September 1988,
the inception of Principal Guaranteed Fund II in October 1988, the inception of
Principal Guaranteed Fund III in October 1988, the inception of Principal Plus
in August 1989, the inception of Diversified III in May 1990, the inception of
Select in March 1991, the inception of Global in November 1991, the inception of
World Currency in December 1992, the inception of DWIAF in March 1994, the
inception of each of Spectrum Strategic, Spectrum Technical and Spectrum
Balanced in April 1994, the inception of Chesapeake in November 1994 and the
inception of DWR/JWH in December 1995. As of December 31, 1996, the General
Partner had in excess of $1 billion in aggregate net assets under management,
making it one of the largest operators of managed futures funds in the United
States. As of December 31, 1996, there were approximately 84,000 investors in
the commodity pools managed by Demeter.
The responsibilities of the General Partner are described under "Fiduciary
Responsibility" and "The Limited Partnership Agreement--Management of
Partnership Affairs." The General Partner will receive no compensation for its
services to the Partnership (however, the General Partner shares office space,
equipment and staff with DWR, which will receive commodity brokerage commissions
from the Partnership, as described under "Description of Charges to the
Partnership--2. Dean Witter Reynolds Inc."). Under the Limited Partnership
Agreement, the General Partner is required generally to maintain its net worth
at an amount not less than 10% of the total contributions to the Partnership by
all the Partners thereof (including the General Partner's contribution) and to
any other limited partnership for which it acts as a general partner by all
partners. In addition to its current capitalization and exclusive of its
anticipated additional investment in the Partnership, the General Partner will
increase its net worth from time to time as may be required. DWD intends to
contribute to the General Partner any additional capital which may be necessary
to permit the General Partner to meet such net worth requirements. See
"Capitalization."
In this connection, as reflected in DWD's 1996 and 1995 Annual Reports, DWD
had total shareholders' equity of $5,164.4 million and total assets of $42,413.6
million as of December 31, 1996 (audited), and total shareholders' equity of
$4,833.7 million and total assets of $38,208.2 million as of December 31, 1995
(audited). Additional financial information regarding DWD is included in the
financial statements filed as part of such Annual Reports. DWD will provide to
investors, upon request, copies of its most recent Forms 10-K, 10-Q and 8-K, as
filed from time to time with the SEC. Such reports will be available for review
or copying at the offices of the SEC, 450 Fifth Street, N.W., Room 1024,
Judiciary Plaza, Washington, D.C. 20549 or will be available at no charge by
writing to DWD at Two World Trade Center, New York, New York 10048 (Attn:
Investor Relations).
On February 5, 1997, DWD and Morgan Stanley Group Inc. ("Morgan Stanley")
announced a definitive agreement to merge. Under the terms of the merger
agreement unanimously approved by the Boards of Directors of both companies,
each Morgan Stanley common share will be exchanged for 1.65 common shares of
DWD. Morgan Stanley preferred shares outstanding at the date of the merger will
be exchanged for preferred shares of DWD having substantially identical terms.
The transaction, which is expected to be completed in mid-1997, is subject to
customary closing conditions, including certain regulatory approvals and the
approval of shareholders of both companies. It is anticipated that such merger
will have no material effect on the ability of DWR and Demeter to meet their
respective obligations as commodity broker for, and General Partner of, the
Partnership.
DIRECTORS AND OFFICERS OF THE GENERAL PARTNER
RICHARD M. DeMARTINI, age 44, is the Chairman of the Board and a Director of
the General Partner. Mr. DeMartini is also the Chairman of the Board and a
Director of Dean Witter Futures & Currency Management, Inc. ("DWFCM"), a
registered commodity trading advisor. Mr. DeMartini has
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served as President and Chief Operating Officer of Dean Witter Capital, a
division of DWR since January 1989. From January 1988 until January 1989, Mr.
DeMartini served as President and Chief Operating Officer of the Consumer
Banking Division of DWD, and from May 1985 until January 1988 was President and
Chief Executive Officer of the Consumer Markets Division of DWD. Mr. DeMartini
currently serves as a Director of DWD and of DWR, and has served as an officer
of DWR for the past five years. Mr. DeMartini has been with DWD and its
affiliates for 22 years.
MARK J. HAWLEY, age 53, is President and a Director of the General Partner.
Mr. Hawley joined DWR in February 1989 as Senior Vice President and Director of
DWR's Managed Futures and Precious Metals Department and currently serves as
Executive Vice President of that department. Mr. Hawley also serves as President
of DWFCM. From 1978 to 1989, Mr. Hawley was a member of the senior management
team at Heinold Asset Management, Inc., a commodity pool operator, 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 & Co.
LAWRENCE VOLPE, age 49, is a Director of the General Partner and DWFCM. Mr.
Volpe joined DWR as a Senior Vice President and Controller in September 1983,
and currently holds those positions. From July 1979 to September 1983, he was
associated with E.F. Hutton & Company Inc. and prior to his departure, held the
positions of First Vice President and Assistant Controller. From 1970 to July
1979, he served as audit manager in the financial services division of Arthur
Andersen & Co.
JOSEPH G. SINISCALCHI, age 51, is a Director of the General Partner. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President, Director of
General Accounting. He is currently Senior Vice President and Controller of the
Financial Markets Division of DWR. From February 1980 to July 1984, Mr.
Siniscalchi was Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc.
LAURENCE E. MOLLNER, age 55, is a Director of the General Partner. Mr.
Mollner joined DWR in May 1979 as Vice President and Director of Commercial
Sales. He is currently Executive Vice President and Deputy Director of the
Futures Markets Division of DWR.
EDWARD C. OELSNER III, age 54, is a Director of the General Partner. Mr.
Oelsner joined DWR in March 1981 as a Managing Director in the Corporate Finance
Department. He currently manages DWR's Retail Products Group within the
Corporate Finance Department. While Mr. Oelsner has extensive experience in the
securities industry, he has no experience in futures interests trading.
ROBERT E. MURRAY, age 36, is a Director of the General Partner. Mr. Murray
is currently a Senior Vice President of the DWR Managed Futures Division and is
a Director and the Senior Administrative Officer of DWFCM. Mr. Murray graduated
from Geneseo State University in May 1983 with a B.A. degree in Finance. Mr.
Murray began at DWR in 1984 and is currently the Director of Product Development
for the Managed Futures Division and is responsible for the development and
maintenance of the proprietary Fund Management System utilized by the General
Partner and DWFCM for organizing information and producing reports for
monitoring investors' accounts.
PATTI L. BEHNKE, age 36, is Vice President and Chief Financial Officer of
the General Partner. Ms. Behnke joined DWR in 1991 as Assistant Vice President
of Financial Reporting and is currently a First Vice President and Director of
Financial Reporting and Managed Futures Accounting in the Capital Markets
division of DWR. From August 1988 to September 1990, Ms. Behnke was Assistant
Controller of L.F. Rothschild & Co. and from September 1986 to August 1988, she
was associated with Carteret Savings Bank as Assistant Vice President--Financial
Analysis. From April 1982 to September 1986, Ms. Behnke was an auditor at Arthur
Andersen & Co.
The General Partner and its officers and directors may, from time to time,
trade futures interests contracts for their own proprietary accounts. The
records of trading in such accounts will not be made available to Limited
Partners for inspection.
No principals of the General Partner own Units as of the date of this
Prospectus.
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<PAGE>
The General Partner has agreed to make capital contributions to the
Partnership as needed to make the General Partner's capital contribution at
least equal to the greater of (a) 1% of aggregate capital contributions to the
Partnership by all Partners (including the General Partner's contribution) and
(b) $25,000. The General Partner and its principals are not obligated to
purchase Units but may do so.
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<PAGE>
THE FUTURES, OPTIONS AND FORWARDS MARKETS
FUTURES CONTRACTS
Futures contracts are standardized contracts made on domestic or foreign
exchanges which call for the future delivery of specified quantities of various
agricultural and tropical commodities, industrial commodities, currencies,
financial instruments or metals at a specified time and place. The contractual
obligations, depending upon whether one is a buyer or a seller, may be satisfied
either by taking or making, as the case may be, physical delivery of an approved
grade of commodity or by making an offsetting sale or purchase of an equivalent
but opposite futures contract on the same exchange prior to the designated date
of delivery. As an example of an offsetting transaction where the physical
commodity is not delivered, the contractual obligation arising from the sale of
one contract of December 1997 wheat on a commodity exchange may be fulfilled at
any time before delivery of the commodity is required by the purchase of one
contract of December 1997 wheat on the same exchange. The difference between the
price at which the futures contract is sold or purchased and the price paid for
the offsetting purchase or sale, after allowance for brokerage commissions,
constitutes the profit or loss to the trader. Certain futures contracts, such as
those for stock or other financial or economic indices approved by the CFTC or
Eurodollar contracts, settle in cash (irrespective of whether any attempt is
made to offset such contracts), rather than delivery of any physical commodity.
FORWARD CONTRACTS
Contracts for future delivery of certain commodities may also be made
through banks or dealers pursuant to what are commonly referred to as "forward
contracts." A forward contract is a contractual right to purchase or sell a
specified quantity of a commodity at or before a specified date in the future at
a specified price and, therefore, is similar to a futures contract. In forward
contract trading, a bank or dealer generally acts as principal in the
transaction and includes its anticipated profit (the "spread" between the "bid"
and the "asked" prices), and in some instances a mark-up, in the prices it
quotes for forward contracts. Unlike futures contracts, forward contracts are
not standardized contracts; rather, they are subjects of individual negotiation
between the parties involved. Moreover, there is no clearinghouse system
applicable to forward contracts, forward contracts are not fungible, and there
is no direct means of "offsetting" by purchase of an offsetting position on the
same exchange as one can a futures contract. In recent years, the terms of
forward contracts have become more standardized and in some instances such
contracts now provide a right of offset or cash settlement as an alternative to
making or taking delivery of the contract.
OPTIONS ON FUTURES
An option on a futures contract or on a physical commodity gives the buyer
of the option the right to take a position at a specified price (the "striking,"
"strike," or "exercise" price) in the underlying futures contract or commodity.
The buyer of a "call" option acquires the right to take a long position in the
underlying futures contract or commodity, and the buyer of a "put" option
acquires the right to take a short position in the underlying futures contract
or commodity.
The purchase price of an option is referred to as its "premium." The seller
(or "writer") of an option is obligated to take a futures position at a
specified price opposite to the option buyer if the option is exercised. Thus,
the seller of a call option must stand ready to take a short position in the
underlying futures contract at the striking price if the buyer should exercise
the option. The seller of a put option, on the other hand, must stand ready to
take a long position in the underlying futures contract at the striking price.
A call option on a futures contract is said to be "in-the-money" if the
striking price is below current market levels, and "out-of-the-money" if the
striking price is above current market levels. Similarly, a put option on a
futures contract is said to be "in-the-money" if the striking price is above
current market levels, and "out-of-the-money" if the striking price is below
current market levels.
Options have limited life spans, usually tied to the delivery or settlement
date of the underlying futures contract. An option that is out-of-the-money and
not offset by the time it expires becomes
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worthless. On certain exchanges, in-the-money options are automatically
exercised on their expiration date, but on others unexercised options simply
become worthless after their expiration date. Options usually trade at a premium
above their intrinsic value (I.E., the difference between the market price for
the underlying futures contract and the striking price), because the option
trader is speculating on (or hedging against) future movements in the price of
the underlying contract. As an option nears its expiration date, the market and
intrinsic value typically move into parity. The difference between an option's
intrinsic and market values is referred to as the "time value" of the option.
The use of interrelated options and futures positions can provide an
additional means of risk management and permit a trader to retain a futures
position in the hope of additional appreciation in that position, while at the
same time allowing the trader to limit the possible adverse effects of a decline
in the position's value.
Successful futures options trading requires many of the same skills as does
successful futures trading. However, since specific market movements of the
underlying futures contract or commodity must be predicted accurately, the risks
involved are somewhat different. For example, if the Partnership buys an option
(either to sell or buy a futures contract or commodity), it will pay a "premium"
representing the market value and time value of the option. Unless the price of
the futures contract or commodity underlying the option changes and it becomes
profitable to exercise or offset the option before it expires, the Partnership
may lose the entire amount of such premium. Conversely, if the Partnership sells
an option (either to sell or buy a futures contract or commodity), it will be
credited with the premium but will have to deposit margin due to its contingent
liability to take or deliver the futures contract or commodity underlying the
option in the event the option is exercised. Traders who sell options are
subject to the entire loss which occurs in the underlying futures position or
commodity (less any premium received). The ability to trade in or exercise
options may be restricted in the event that trading in the underlying futures
contract or commodity becomes restricted.
HEDGERS AND SPECULATORS
The two broad classes of persons who trade futures interests contracts are
"hedgers" and "speculators." Commercial interests, including farmers, that
market or process commodities and financial institutions that market or deal in
commodities (including, for example, interest rate sensitive instruments,
foreign currencies and stock portfolios) and which are exposed to exchange,
interest rate and stock market risks, may use the commodities markets primarily
for hedging. Hedging is a protective procedure designed to minimize losses that
may occur because of price fluctuations occurring, for example, between the time
a merchandiser or processor makes a contract to buy or sell a raw or processed
commodity at a certain price and the time he must perform the contract. The
commodity markets enable the hedger to shift the risk of price fluctuations to
the speculator. The speculator risks his capital with the hope of making profits
from price fluctuations in futures interests contracts. Speculators rarely take
delivery of commodities, but generally close out their positions by entering
into offsetting purchases or sales of contracts. Since the speculator may take
either a long or short position in the commodities markets, it is possible for
him to make profits or incur losses regardless of whether prices go up or down.
Trading by the Partnership will be for speculative rather than hedging purposes.
COMMODITY EXCHANGES
Commodity exchanges provide centralized market facilities for trading
futures contracts and options (but not forward contracts) relating to specified
commodities, indices and other intangibles. Members of, and trades executed on,
a particular exchange are subject to the rules of that exchange. Among the
principal exchanges in the United States are the Chicago Board of Trade, the
Chicago Mercantile Exchange (including the International Monetary Market), the
New York Mercantile Exchange, the Commodity Exchange, Inc. and the Coffee, Sugar
and Cocoa Exchange.
Each of the commodity exchanges in the United States has an associated
"clearinghouse." Once trades between members of an exchange have been confirmed,
the clearinghouse becomes substituted for each buyer and each seller of
contracts traded on the exchange and, in effect, becomes the other party to each
trader's open position in the market. Thereafter, each party to a trade looks
only to the
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clearinghouse for performance. The clearinghouse generally establishes some sort
of security or guarantee fund to which all clearing members of the exchange must
contribute; this fund acts as an emergency buffer which enables the
clearinghouse, at least to a large degree, to meet its obligations with regard
to the "other side" of an insolvent clearing member's contracts. Furthermore,
clearinghouses require margin deposits and continuously mark positions to market
to provide some assurance that their members will be able to fulfill their
contractual obligations. Thus, a central function of the clearinghouses is to
ensure the integrity of trades, and members effecting futures transactions on an
organized exchange need not worry about the solvency of the party on the
opposite side of the trade; their only remaining concerns are the respective
solvencies of their commodity broker and the clearinghouse. The exchanges also
impose speculative position limits and other restrictions on customer positions
to help ensure that no single trader can amass a position that would have a
major impact on market prices.
Commodity exchanges in the United States and their clearinghouses are given
reasonable latitude in promulgating rules and regulations to control and
regulate their members. Examples of regulations by exchanges and clearinghouses
include the establishment of initial margin levels, size of trading units,
contract specifications, speculative position limits and daily price fluctuation
limits. The CFTC reviews all such rules (other than those relating to specific
margin levels for futures, as opposed to options) and can disapprove or, with
respect to certain of such rules, require the amendment or modification thereof.
Foreign commodity exchanges differ in certain respects from their United
States counterparts. In contrast to United States exchanges, certain foreign
exchanges are "principals' markets," where trades remain the liability of the
traders involved, and the exchange does not become substituted for any party.
See "The Futures, Options and Forward Markets--Regulations" and "Risk
Factors--Risks Relating to Futures Interests Trading and the Futures Interests
Markets--Special Risks Associated with Trading on Foreign Exchanges."
SPECULATIVE POSITION LIMITS
The CFTC and the United States commodity exchanges have established limits,
referred to as "speculative position limits" or "position limits," on the
maximum net long or net short speculative position which any person or group of
persons (other than a hedger, which the Partnership is not) may hold, own or
control in futures interests contracts. Among the purposes of speculative
position limits is to prevent a "corner" on a market or undue influence on
prices by any single trader or group of traders. The CFTC has jurisdiction to
establish position limits with respect to all commodities and has established
position limits for all agricultural commodities. In addition, the CFTC requires
each United States exchange to submit position limits for all commodities traded
on such exchange for approval by the CFTC. Certain exchanges or their
clearinghouses also set limits on the total net positions that may be held by a
commodity broker, such as DWR. However, position limits do not apply to many
currency futures contracts, and, in general, no position limits are in effect in
bank or dealer forward contract trading or in trading on foreign commodity
exchanges, although the principals with which the Partnership may trade in such
markets may impose such limits as a matter of credit policy. The futures
interests positions of the Partnership are not, and will not be, attributable to
Limited Partners with respect to their own futures interests trading, if any,
for purposes of position limits.
DAILY LIMITS
Most United States commodity exchanges (but generally not foreign exchanges
or banks or dealers in the case of forward contracts) normally limit the amount
of fluctuation in futures interests contract prices during a single trading day
by regulation. These regulations specify what are referred to as "daily price
fluctuation limits" or more commonly "daily limits." The daily limits establish
the maximum amount that the price of a commodity contract may vary either up or
down from the previous day's settlement price. Once the daily limit has been
reached in a particular futures interest, no trades may be made at a price
beyond the limit. This can create liquidity problems.
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REGULATIONS
Commodity exchanges in the United States are subject to regulation under the
CEAct by the CFTC, the governmental agency having responsibility for regulation
of commodity exchanges and futures interests contract trading conducted thereon.
The function of the CFTC is to implement the objectives of the CEAct of
preventing price manipulation and excessive speculation and promoting orderly
and efficient markets. Such regulation, among other things, provides that
trading in futures interests contracts must be on exchanges designated as
"contract markets," and that all trading on such exchanges must be done by or
through exchange members.
The CFTC possesses exclusive jurisdiction to regulate the activities of
"commodity trading advisors" and "commodity pool operators" and has adopted
regulations with respect to certain of such persons' activities. Pursuant to its
authority, the CFTC requires a commodity pool operator (such as the General
Partner) to keep accurate, current and orderly records with respect to each pool
it operates. The CFTC may suspend the registration of a commodity pool operator
if the CFTC finds that the operator has violated the CEAct or regulations
thereunder and in certain other circumstances. Suspension, restriction or
termination of the General Partner's registration as a commodity pool operator
would prevent the General Partner, until such time (if any) as such registration
were to be reinstated, from managing, and might result in a termination of, the
Partnership. The CEAct gives the CFTC similar authority with respect to the
activities of commodity trading advisors, such as the Trading Advisor. If the
registration of the Trading Advisor as a commodity trading advisor were to be
terminated, restricted or suspended, the Trading Advisor would be unable, until
such time (if any) as such registration were to be reinstated, to render trading
advice to the Partnership. The Partnership itself is not registered with the
CFTC in any capacity.
The CEAct requires all "futures commission merchants," such as DWR, to meet
and maintain specified fitness and financial requirements, segregate customer
funds from proprietary funds and account separately for all customers' funds and
positions, and to maintain specified books and records open to inspection by the
staff of the CFTC. The CFTC has similar authority over "introducing brokers,"
I.E., persons who solicit or accept orders for trades but who do not accept
margin deposits for the execution of trades. The Partnership has no present
intention of using any introducing brokers in its trading. The CEAct also gives
the states certain powers to enforce its provisions and the regulations of the
CFTC.
The fact of CFTC registration of the General Partner, DWR and the Trading
Advisor does not imply that the CFTC has passed on or approved this offering or
their qualifications to act as described in the Prospectus.
Limited Partners are afforded certain rights for reparations under the
CEAct. Limited Partners may also be able to maintain a private right of action
for certain violations of the CEAct. The CFTC has adopted rules implementing the
reparation provisions of the CEAct which provide that any person may file a
complaint for a reparations award with the CFTC for violation of the CEAct
against a floor broker, futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, and their respective
associated persons.
Pursuant to authority in the CEAct, the NFA has been formed and registered
with the CFTC as a "registered futures association." At the present time, the
NFA is the only non-exchange self-regulatory organization for commodities
professionals. NFA members are subject to NFA standards relating to fair trade
practices, financial condition, and consumer protection. As the self-regulatory
body of the commodities industry, the NFA promulgates rules governing the
conduct of commodity professionals and disciplines those professionals who do
not comply with such standards. The CFTC has delegated to the NFA responsibility
for the registration of commodity trading advisors, commodity pool operators,
futures commission merchants, introducing brokers and their respective
associated persons and floor brokers. DWR, the General Partner and the Trading
Advisor are members of the NFA (the Partnership itself is not required to become
a member of the NFA).
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The above-described regulatory structure may be modified (or repealed) by
rules and regulations promulgated by the CFTC or by legislative changes enacted
by Congress.
The CFTC has no authority to regulate trading on foreign commodity exchanges
and markets. The CFTC has, however, adopted rules relating to the marketing of
foreign futures contracts and options in the United States. These rules permit
commodity options traded only on certain foreign exchanges to be offered and
sold in the United States. See "Risk Factors--Risks Relating to the Futures
Interests Trading and the Futures Interests Markets."
MARGINS
"Initial" or "original" margin is the minimum amount of funds that must be
deposited by a trader with his commodity broker in order to initiate futures
trading or to maintain an open position in futures contracts. "Maintenance"
margin is the amount (generally less than initial margin) to which a trader's
account may decline before he must deliver additional margin. A margin deposit
is like a cash performance bond. It helps assure the commodity trader's
performance of the commodity futures contracts he purchases or sells. Futures
contracts are customarily bought and sold on margins that represent a very small
percentage (ranging upward from less than 2%) of the purchase price of the
underlying commodity being traded. Because of such low margins, price
fluctuations occurring in the futures markets may create profits and losses that
are greater, in relation to the amount invested, than are customary in other
forms of investment or speculation. The minimum amount of margin required in
connection with a particular futures contract is set from time to time by the
exchange on which such contract is traded, and may be modified from time to time
by the exchange during the term of the contract. See "Risk Factors--Risks
Relating to Futures Interests Trading and the Futures Interests Markets."
Brokerage firms carrying accounts for traders in futures contracts may not
accept lower, and generally require higher, amounts of margin as a matter of
policy in order to afford further protection for themselves. DWR will require
the Partnership to make margin deposits equal to the exchange minimum levels for
all futures contracts. This requirement may be altered from time to time at the
discretion of DWR.
Trading in the currency forward contract market does not require margin, but
generally does require the extension of credit by a bank or dealer with which a
person trades. Since the Partnership's trading will be conducted with DWR, the
Partnership will be able to take advantage of DWR's credit lines with several
participants in the interbank market. The General Partner does not anticipate
that banks and dealers with which DWR and the Partnership may trade will require
margin with respect to their trading of currencies.
When a trader purchases an option, there is no margin requirement. When a
trader sells an option, on the other hand, he is required to deposit margin in
an amount determined by the margin requirements established for the futures
contract underlying the option, and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements imposed on the
writing of options, although adjusted to reflect the probability that
out-of-the-money options will not be exercised, can in fact be higher than those
imposed in dealing in the futures markets directly. Complicated margin
requirements apply to "spreads" and "conversions," which are complex trading
strategies in which a trader acquires a mixture of related futures and options
positions.
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Margin requirements are computed each day by a trader's broker. When the
market value of a particular open futures contract position changes to a point
where the margin on deposit does not satisfy maintenance margin requirements, a
margin call is made by the broker. If the margin call is not met within a
reasonable time, the broker may close out the trader's position. With respect to
the Partnership's trading, the Partnership, and not its Limited Partners
personally, is subject to margin calls.
GENERAL DESCRIPTION OF TRADING APPROACHES
INTRODUCTION
The investment objective of the Partnership is capital appreciation of its
assets through speculative trading in futures interests. The Partnership's
ability to succeed in this endeavor depends largely on the success of the
trading approaches utilized on behalf of such Partnership by the Trading
Advisor. The following is a brief description of general approaches used in
trading futures interests; see "The Trading Advisor--Description of JWH's
Trading Programs" for specific information relating to the Trading Advisor.
SYSTEMATIC AND DISCRETIONARY
Trading advisors may be classified as either systematic or discretionary.
A systematic trader will generally rely to some degree on judgmental
decisions concerning, for example, what markets to follow and futures interests
to trade, when to liquidate a position in a contract which is about to expire
and how large a position to take in a particular futures interest. However,
although these judgmental decisions may have a substantial effect on a
systematic trading advisor's performance, his primary reliance is on trading
programs or models which generate trading signals. The systems utilized to
generate trading signals are changed from time to time (although generally
infrequently), but the trading instructions generated by the systems being used
are followed without significant additional analysis or interpretation.
Discretionary traders, on the other hand, while they may utilize market charts,
computer programs and compilations of quantifiable fundamental information to
assist them in making trading decisions, make trading decisions on the basis of
their own judgment and trading experience, not on the basis of trading signals
generated by any program or model.
Each approach involves certain inherent risks. Systematic traders may fail
to capitalize on market trends which their systems would otherwise have
exploited due to judgmental decisions made by them in the context of applying
their generally mechanical trading systems. Discretionary traders, on the other
hand, may decide to make trades which would not have been signaled by a trading
system and which result in substantial losses. Furthermore, any trading system
or trader may suffer substantial losses by misjudging the market. Systematic
traders tend to rely more on computerized programs than do discretionary
traders, and some consider the prospect of disciplined trading, which largely
removes the emotion of the individual trader from the trading process,
advantageous. In addition, due to their use of computers, systematic traders are
generally able to incorporate more data into a particular trading decision than
can discretionary traders. However, when fundamental factors dominate the
market, trading systems may suffer rapid and severe losses due to their
inability to respond to such factors until the reversal of trading signals, by
which time a precipitous price change may already be in progress, preventing
liquidation at anything but substantial losses. The trading approaches applied
by the Trading Advisor are systematic, although subjective judgment is used in
the application of its systematic programs.
TECHNICAL AND FUNDAMENTAL ANALYSIS
In addition to being distinguished from one another by the criterion of
whether they trade systematically or on the basis of their discretionary
evaluations of the markets, trading advisors are also distinguished as relying
on either "technical" or "fundamental" analysis, or on a combination of the two.
Systematic traders tend to rely on technical analysis, because the data relevant
to such analysis is more susceptible to being isolated and quantified to the
extent necessary to be successfully incorporated into a program or mathematical
model than is most "fundamental" information, but there is no
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inconsistency in attempting to trade systematically on the basis of fundamental
analysis. The fundamental information which can be evaluated by a formalized
trading system is, however, limited to some extent in that it generally must be
quantifiable in order to be processed by such a system.
Technical analysis is not based on anticipated supply and demand factors;
instead, it is based on the theory that the study of the futures interests
markets themselves will provide a means of anticipating prices in the future.
Technical analysis operates on the theory that market prices at any given point
in time reflect all known factors affecting the supply and demand for a
particular futures interest. Consequently, technical analysis focuses not on
evaluating those factors directly but on an analysis of market prices
themselves, theorizing that a detailed analysis of, among other things, actual
daily, weekly and monthly price fluctuations, volume variations and changes in
open interest is the most effective means of attempting to predict the future
course of price movements.
Fundamental analysis, in contrast, is based on the study of factors external
to the trading markets that affect the supply and demand of a particular futures
interest in an attempt to predict future price levels. Such factors might
include weather, the economy of a particular country, government policies,
domestic and foreign political and economic events, and changing trade
prospects. Fundamental analysis theorizes that by monitoring relevant supply and
demand factors for a particular commodity, a state of current or potential
disequilibrium of market conditions may be identified that has yet to be
reflected in the price level of that futures interest. Fundamental analysis
assumes that markets are imperfect, that information is not instantaneously
assimilated or disseminated, and that econometric models can be constructed that
generate equilibrium prices that may indicate that current prices are
inconsistent with underlying economic conditions and will, accordingly, change
in the future.
The Trading Advisor's trading programs are purely technical programs.
TREND-FOLLOWING
"Trend-following" trading advisors gear their trading approaches towards
positioning themselves to take advantage of major price movements, as opposed to
traders who seek to achieve overall profitability by making numerous small
profits on short-term trades, or through arbitrage techniques. "Trend-following"
trading advisors assume that most of their trades will be unprofitable. Their
objective is to make a few large profits, more than offsetting their more
numerous but smaller losses, from capitalizing on major trends. Consequently,
during periods when no major price trends develop in a market, a
"trend-following" trading advisor is unlikely to develop any meaningful profits.
Trend-following is a major element of the Trading Advisor's technical analysis.
RISK CONTROL TECHNIQUES
As will be apparent from the following descriptions of the Trading Advisor's
trading programs, an important aspect of any speculative futures interests
strategy relates to the control of losses, not only the ability to identify
profitable trades. Unless it is possible to avoid major drawdowns, it is very
difficult to achieve long-term profitability.
Trading advisors often adopt fairly rigid "risk management" or "money
management" principles. Such principles typically restrict the size of positions
which will be taken, as well as establishing "stop-loss" points at which losing
positions must be liquidated. It is important for prospective investors to
recognize that no risk control technique is "fail safe" and can not, in fact,
assure that major drawdowns will be avoided. Not only do estimates of market
volatility themselves require judgmental input, but market illiquidity also can
make it impossible for an account to liquidate a position against which the
market is moving strongly, whatever risk management principles are utilized.
Similarly, unless a "trend-following" trading advisor trades profitably, the
losses incurred in the course of taking an initial position in a particular
futures interest can quickly accumulate into a major drawdown. A trading
advisor's risk management principles should, accordingly, be seen more as a
discipline applied to its trading in highly speculative markets rather than as
an effective protection against loss.
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Not only are some methods proprietary and confidential, but they are also
continually evolving. Prospective investors and Limited Partners will generally
not be informed of a change in the Trading Advisor's trading approach, unless
the General Partner considers such change to be material.
In addition to the continually changing character of trading methods, the
futures interests markets themselves are continually changing. The Trading
Advisor may, in its sole discretion, elect to trade certain futures interests to
the exclusion of others in its programs, depending upon the Trading Advisor's
view of the markets.
THE TRADING ADVISOR
INTRODUCTION
The Partnership has entered into an Amended and Restated Management
Agreement with John W. Henry & Company, Inc. (the "Trading Advisor" or "JWH"),
pursuant to which the Trading Advisor continues to have, subject to certain
limitations, authority and responsibility for directing the investment and
reinvestment in futures interests of the Partnership's Net Assets. See "The
Management Agreement." Since the primary purpose of the Partnership is to
achieve appreciation of its assets through speculative trading in futures
interests, the Partnership's ability to succeed in that endeavor will depend
upon the continued success of the relevant trading programs of the Trading
Advisor.
The General Partner has extensive experience in the organization of
commodity pools and the evaluation and selection of trading advisors, having
operated 28 commodity pools since 1978. The General Partner's objective in
originally selecting the trading advisor, and in electing to have the Trading
Advisor continue as trading advisor for the Partnership, is to obtain access to
aggressive trading strategies coupled with strict risk control measures, which
would be able to capitalize on profitable trends while providing substantial
protection against major losses. The original decision to retain the Trading
Advisor, and the decision to continue employing the services of the Trading
Advisor, was influenced by a number of factors, among which was the General
Partner's evaluation of the Trading Advisor's historical performance (both for
the Partnership and otherwise), the markets traded by the Trading Advisor, its
ability to control risk, and the amount of equity managed by the Trading
Advisor.
The following description of the Trading Advisor's trading programs,
methods, and strategies and its principals is general and is not intended to be
exhaustive. As of December 31, 1996, the Partnership's assets were allocated
59.8% to the Financial and Metals Portfolio, 19.6% to The World Financial
Perspective, 9.3% to the Global Diversified Portfolio, and 11.3% to the
International Foreign Exchange Program. It is the intention of the General
Partner and the Trading Advisor, effective approximately as of the date of the
Closing, that the Partnership's assets will be allocated 20% to each of the
Original Investment Program, the Financial and Metals Portfolio, The World
Financial Perspective, the Global Financial Portfolio, and the International
Currency and Bond Portfolio. The percentage of the Partnership's assets
allocated to the various programs of the Trading Advisor may change at any time
and from time to time as a result of reallocations upon the agreement of the
General Partner and the Trading Advisor, which shall be at their collective
discretion, and will change as a result of profits and losses in each such
program.
JOHN W. HENRY & COMPANY, INC.
John W. Henry & Company, Inc. ("JWH"), a California corporation, is a United
States-based global investment management firm with offices located at 301
Yamato Road, Boca Raton, Florida and at One Glendinning Place, Westport,
Connecticut 06880. Its telephone number is (203) 221-0431, and its website is
http://www.jwh.com. JWH is recognized as a leader in managing capital in
futures, interest rate, and foreign exchange markets for international banks,
brokerage firms, pension funds, institutions, and high-net-worth individuals.
JWH trades numerous contracts on a 24-hours basis in the U.S., Europe and Asia,
and has grown to be one of the largest advisors in the industry, managing over
$1.9 billion in client capital as of December 31, 1996.
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John W. Henry & Company began managing assets in 1981 as a sole
proprietorship, and was later incorporated in the state of California as John W.
Henry & Co., Inc. to conduct business as a commodity trading advisor. The sole
shareholder of JWH is the John W. Henry Trust dated July 27, 1990. The trustee
and sole beneficiary of the Trust is John W. Henry. The firm is registered as a
commodity trading advisor and a commodity pool operator with the Commodity
Futures Trading Commission and is a member of the NFA in such capacities. JWH is
not affiliated with the General Partner or DWR.
The individual principals of JWH are as follows:
Mr. John W. Henry, age 47, is chairman of the JWH Board of Directors (the
"Chairman") and is trustee and sole beneficiary of the John W. Henry Trust dated
July 27, 1990. Mr. Henry is also a member of the Investment Policy Committee of
JWH. He currently concentrates his activities at JWH on portfolio management,
business issues and frequent dialogue with trading supervisors. Mr. Henry is the
exclusive owner of certain trading systems licensed to Elysian Licensing
Corporation, a corporation wholly-owned by Mr. Henry and sublicensed by Elysian
Licensing Corporation to JWH and utilized by JWH in managing client accounts.
Over the last 15 years, Mr. Henry has developed many innovative investment
programs which have enabled JWH to become one of the most successful money
managers in the foreign exchange, futures and fixed income markets.
Mr. Henry has served on the Board of Directors of the National Association
of Futures Trading Advisors ("NAFTA") and the Managed Futures Association
("MFA"), and has served on the Nominating Committee of the NFA. Mr. Henry
currently serves on the Board of Directors of the Futures Industry Association
("FIA") and is Chairman of the FIA Task Force on Derivatives for Investment. He
also currently serves on a panel created by the Chicago Mercantile Exchange and
the Chicago Board of Trade to study cooperative efforts related to electronic
trading, common clearing and the issues regarding a merger. Mr. Henry is a
principal of JWH Risk Management, Inc. ("JWH RMI"), JWH Asset Management, Inc.
("JWH AMI"), Westport Capital Management Corporation ("Westport"), Global
Capital Management Limited ("GCM"), and JWH Financial Products, Inc. ("JWH
FPI"), all of which are affiliates of JWH. Since the beginning of 1987, Mr.
Henry has devoted, and will continue to devote, considerable time to activities
in businesses unrelated to JWH and its affiliates.
Mr. Mark H. Mitchell, age 47, is a vice chairman, executive vice president
and a member of the JWH Board of Directors. He is also vice chairman and a
director of JWH RMI, JWH AMI, and JWH FPI. Prior to joining JWH in January 1994,
Mr. Mitchell was a partner of Chapman and Cutler, a Chicago law firm, where he
headed its futures law practice since August 1983. From August 1980 to March
1991, he served as General Counsel of the NAFTA and, from March 1991 to December
1993, he served as General Counsel of the MFA. Mr. Mitchell is currently a
member of the Commodity Pool Operator/ Commodity Trading Advisor Advisory
Committee and the Special Committee for the Review of a Multi-tiered Regulatory
Approach to NFA Rules, both of the NFA. In addition, he has served as a member
of the Government Relations Committee of the MFA and the Executive Committee of
the Law and Compliance Division of the FIA. In 1985, he received the Richard P.
Donchian Award for Outstanding Contributions to the Field of Commodity Money
Management. He has been an editor of FUTURES INTERNATIONAL LAW LETTER and its
predecessor publication, COMMODITIES LAW LETTER. He received an A.B. with honors
from Dartmouth College and a J.D. from the University of California at Los
Angeles, where he was named to the Order of the Coif, the national legal
honorary society.
Mr. David R. Bailin, age 37, is an executive vice president and is a member
of the Operating Committee of JWH. He is also president of JWH FPI and JWH RMI,
president and a director of Westport, and president and chairman of the Board of
Directors of GCM. Mr. Bailin is responsible for the development, implementation,
and management of JWH's sales and marketing infrastructure. Prior to joining JWH
in December 1995, Mr. Bailin was managing director-development since April 1994
for Global Asset Management ("GAM"), a Bermuda-based investment management firm
with over $7 billion in assets. He was responsible for overseeing the
international distribution of GAM's funds as well as for establishing new
distribution relationships and channels. Prior to his employment with GAM, Mr.
Bailin headed the real estate asset management division of Geometry Asset
Management
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beginning in July 1992. Prior to that time, beginning in 1988, he was President
of Warner Financial, an investment advisory business in Boston, Massachusetts.
Mr. Bailin received a B.A. from Amherst College and an M.B.A. from Harvard
Business School.
Mr. James E. Johnson, Jr., age 44, is a managing director of JWH, with
responsibilities in the institutional marketing area. Mr. Johnson is also a
principal of Westport, JWH RMI, JWH AMI, and JWH FPI. Mr. Johnson joined JWH in
May of 1995 from Bankers Trust Company, where he was managing director and chief
financial officer for its Institutional Asset Management Division since January
1983. His areas of responsibility included finance, operations and technology
for the $160 billion global asset advisor. Prior to joining Bankers Trust, Mr.
Johnson was a product manager at American Express Company responsible for
research and market strategies for the Gold Card. He received a B.A. with honors
from Columbia University and an M.B.A. in Finance and Marketing from New York
University.
Ms. Elizabeth A.M. Kenton, age 31, is a senior vice president, the director
of compliance, and a member of the Operating Committee of JWH. Since joining JWH
in March of 1989, Ms. Kenton has held positions of increasing responsibility in
research and development, administration and regulatory compliance. Ms. Kenton
is also a director of Westport, a vice president of JWH AMI and JWH FPI, a
senior vice president of JWH RMI and a director of GCM. Prior to her employment
at JWH, Ms. Kenton was Associate Manager of Financial and Trading Operations at
Krieger Investments, a currency and commodity trading firm. From July 1987 to
September 1988, Ms. Kenton worked for Bankers Trust Company as a product
specialist for foreign exchange and treasury options trading. She received a
B.S. in Finance from Ithaca College. Ms. Kenton serves on the MFA Trading and
Markets Committee.
Ms. Mary Beth Hardy, age 36, is a senior vice president, the director of
trading administration (the "Director of Trading Administration"), and is a
member of the Operating and Investment Policy Committees of JWH. Ms. Hardy
announced her resignation on March 4, 1997 from the position listed above,
effective April 30, 1997. Thereafter, she may continue with JWH on a part-time
basis to assist with transition issues. Since joining JWH in September 1990, Ms.
Hardy has held positions of increasing responsibility in research and
development and trading. Prior to her employment at JWH, Ms. Hardy held the
position of associate editor at Waters Information Services, where she wrote
weekly articles covering technological advances in the securities and futures
markets. Prior to joining Waters Information Services in 1989, Ms. Hardy was at
Shearson Lehman Brothers Inc., where she held the position of assistant director
of the Managed Futures Trading Department. Prior to that, Ms. Hardy was an
institutional salesperson for Shearson in a group specializing in financial
futures and options. Previously, Ms. Hardy was an institutional salesperson for
Donaldson, Lufkin and Jenrette with a group which also specialized in financial
futures and options. Ms. Hardy serves on the Executive Committee of the Managed
Futures Association's Board of Directors and has chaired its Trading and Markets
committee. She received a B.B.A. in Finance from Pace University.
Mr. David M. Kozak, age 49, is Counsel to the Firm, vice president and
secretary of JWH. He is also secretary of JWH RMI, JWH AMI, and JWH FPI, and
assistant secretary of Westport. Prior to joining JWH in September 1995, Mr.
Kozak was employed at Chapman and Cutler, where he was an associate from
September 1983 and a partner from 1989. Mr. Kozak has concentrated in commodity
futures law since 1981, with emphasis in the area of commodity money management.
During the time he was employed at Chapman and Cutler, he served as outside
counsel to the NAFTA and the MFA. Mr. Kozak is currently a member of the
Government Relations Committee of the MFA, the NFA Special Committee on CPO/CTA
Disclosure Issues and the Visiting Committee of The University of Chicago
Library. He received a B.A. from Lake Forest College, an M.A. from The
University of Chicago, and a J.D. from Loyola University of Chicago.
Mr. Kevin S. Koshi, age 33, is a senior vice president, chief trader (the
"Chief Trader"), and a member of the Operating and Investment Policy Committees
of JWH. Mr. Koshi is responsible for the supervision and administration of all
aspects of order execution strategies and implementation of
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trading policies and procedures. Mr. Koshi joined JWH in August 1988 as a
professional in the Finance Department, and since 1990 has held positions of
increasing responsibility in the Trading Department. He received a B.S. in
Finance from California State University at Long Beach.
Mr. Barry S. Fox, age 32, is the director of research and is a member of the
Operating and Investment Policy Committees of JWH. Mr. Fox is responsible for
the design and testing of existing and new programs. He also supports and
maintains the proprietary systems/models used to generate JWH trades. Mr. Fox
joined JWH in March 1991 and since that time has held positions of increasing
responsibility in the Research and Development departments. Prior to his
employment at JWH, Mr. Fox provided sales and financial analysis support for
Spreadsheet Solutions, a financial software development company. Prior to
joining Spreadsheet Solutions in October 1990, Mr. Fox operated a trading
company where he traded his own proprietary capital. Before that, he was
employed with Bankers Trust as a product specialist for foreign exchange and
treasury options trading. He received a B.S. in Business Administration from the
University of Buffalo.
Ms. Glenda G. Twist, age 46, is a director of JWH and has held that position
since August 1993. Ms. Twist announced her resignation from JWH on January 15,
1997, but will continue in her present capacity for the time being. Ms. Twist
joined JWH in September 1991 with responsibilities for corporate liaison and she
continues her duties in that area. Her responsibilities include assistance in
the day-to-day administration of the Florida office, and review and compilation
of financial information for JWH. Ms. Twist was President of J.W. Henry
Enterprises Corp., for which she performed financial, consulting and
administration services from January 1991 to August 1991. From 1988 to 1990, Ms.
Twist was Executive Director of Cities in Schools, a program in Arkansas
designed to prevent students from leaving school before completing their high
school education. She received her B.S. in Education from Arkansas State
University.
Mr. John A.F. Ford, age 56, is the director of marketing and is a member of
the Operating Committee of JWH. Mr. Ford is responsible for the development and
implementation of strategic marketing and communications programs. He joined JWH
in May 1996 from J.P. Morgan where he had been vice president and head of
corporate communications for the firm's European operations, responsible for
public relations, advertising, and marketing from February 1994 to October 1995.
He was previously in a similar position with J.P. Morgan at the Euroclear
Operations Centre in Brussels from January 1992 to February 1994. From October
1995 to May 1996 he undertook a number of independent consultancy projects while
relocating to the United States. Prior to joining J.P. Morgan, Mr. Ford was
managing director of the European headquarters of Gavin Anderson & Co. (UK), an
international corporate and investor relations consultancy, from February 1987
to December 1991. Mr. Ford has also been involved in advising the Chicago
Mercantile Exchange on marketing its services to European institutions and
advising the International Petroleum Exchange in London on similar issues. He
also helped market Mercury Asset Management to major institutions and pension
funds.
Mr. Michael D. Gould, age 41, is director of investor services and is a
member of the Operating Committee of JWH. He is responsible for general business
development and oversees the investor services function. He joined JWH in April
1994 from Smith Barney Inc., where he served as senior sales manager and vice
president-futures for the Managed Futures Department. He held the identical
position with the predecessor firms of Shearson Lehman Bros. and Lehman Bros.
beginning in November 1991. Prior to that time, he was engaged in a proprietary
trader development program at Tricon USA from September 1990 to October 1991. He
was a registered financial consultant with Merrill Lynch from 1985 through
August 1990.
Mr. Jack M. Ryng, age 35, C.P.A., joined JWH as the controller in November
1991. He is also a member of the Operating Committee of JWH. Prior to that time,
he was a senior manager with Deloitte & Touche where he held positions of
increasing responsibility since September 1985 for commodities and securities
industry clients. His clients included one of the largest commodity pool
operators in the United States, along with broker/dealers, futures commission
merchants, investment banks, and foreign exchange operations, in the areas of
accounting, regulatory compliance, and consulting. Prior to
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his employment by the Financial Services Center of Touche Ross & Co. (the
predecessor firm of Deloitte & Touche), he worked for Leonard Rosen & Co. as a
senior accountant. Mr. Ryng is a member of AICPA and the New York C.P.A. Society
and is a member of the board of the New York operations of the FIA. He received
a B.S. in Business Administration from Duquesne University.
Mr. Michael J. Scoyni, age 50, is a managing director of JWH and a principal
of Westport. Mr. Scoyni has been associated with Mr. Henry since 1974 and with
JWH since 1982. He was engaged in research and development for John W. Henry
Company (JWH's predecessor) from November 1981 to December 1982 and subsequently
has been employed by JWH in positions of increasing responsibility. He received
a B.A. in Anthropology from California State University.
Mr. Christopher E. Deakins, age 37, is a vice president of JWH. He is
responsible for general business development and investor services support.
Prior to joining JWH in August 1995, he was a vice president, national sales,
and a member of the management Team for RXR Capital Management, Inc. His
responsibilities consisted of business development, institutional sales, and
broker dealer support. Prior to joining RXR in August 1986, he was engaged as an
account executive for Prudential-Bache Securities starting in February 1985.
Prior to that, Mr. Deakins was an account executive for Merrill Lynch, Pierce,
Fenner and Smith Incorporated. He received a B.A. in Economics from Hartwick
College.
Chris J. Lautenslager, age 39, is a Vice President of JWH. He is responsible
for general business development and investor services support. Prior to joining
JWH in April 1996, he was the Vice President of Institutional Sales for I/B/E/S
International, Inc., a distributor of corporate earnings estimate information.
His responsibilities consisted of business development and support of global
money managers and investment bankers. Prior to his employment with I/B/E/S, Mr.
Lautenslager devoted time to personal activities from April 1994 to March 1995,
following the closing of the Stamford, Connecticut office of Gruntal & Co.,
where he had worked as a proprietary equity trader since November 1993. Before
that, he held the same position at S.A.C. Capital Management starting in
February 1993. From October 1987 to December 1992, Mr. Lautenslager was a
partner and managing director of Limitless Option Partners, a registered Chicago
Mercantile Exchange trading and brokerage organization, where he traded currency
futures and options. He received a B.S. in Accounting from the University of
Colorado and a Masters in Management from Northwestern University.
Mr. Edwin B. Twist, age 46, is a director of JWH and has held that position
since August 1993. Mr. Twist is also a director of JWH RMI and JWH AMI. Mr.
Twist joined JWH as internal projects manager in September 1991. Mr. Twist's
responsibilities include assistance in the day-to-day administration of JWH's
Florida office and internal projects. Mr. Twist was secretary and treasurer of
J.W. Henry Enterprises Corp., a Florida corporation engaged in administrative
and financial consulting services, for which he performed financial, consulting
and administrative services from January 1991 to August 1991.
Ms. Nancy O. Fox, age 31, C.P.A., is a vice president and the director of
investment support of JWH. She is responsible for the day-to-day activities of
the Investment Support Department, including all aspects of operations and
performance reporting. Prior to joining JWH in January 1992, Ms. Fox was a
senior accountant at Deloitte & Touche, where she served commodities and
securities industry clients and had positions of increasing responsibility since
July 1987. Ms. Fox is a member of the AICPA and the New Jersey Society of
C.P.A.s. She received a B.S. in Accounting and Finance from Fairfield University
and an MBA from the University of Connecticut.
Ms. Wendy B. Goodyear, age 34, is director of the office of the chairman.
She is responsible for managing and coordinating projects involving Mr. Henry.
Ms. Goodyear joined JWH in October 1995 as director of marketing, responsible
for the development and implementation of strategic marketing and communications
programs. Prior to her employment at JWH, Ms. Goodyear was a vice president at
Citibank where she held several positions, including product development manager
for the depository receipt business and marketing manager for the pension
business. Prior to joining Citibank in May 1993, Ms. Goodyear was employed at
Bankers Trust Company from 1985 where she held positions of
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increasing responsibility in both the private bank and pension businesses. Ms.
Goodyear received a B.A. in History from the University of Virginia and an
M.B.A. from the Stern School of Business at New York University.
Mr. Julius A. Staniewicz, age 38, is the senior strategist in JWH's Product
Development Department and a member of the Operating Committee of JWH. He is
also President of JWH AMI and FPI. Prior to joining JWH in March of 1992, Mr.
Staniewicz was employed with Shearson Lehman Brothers as a financial consultant
starting in April 1991. Prior to that, beginning in 1990, Mr. Staniewicz was a
vice president of Phoenix Asset Management, a commodity pool operator and
introducing broker, where he helped develop futures funds for syndication and
institutional investors. From 1986 to 1989, Mr. Staniewicz worked in the managed
futures department at Prudential-Bache Securities, Inc., as an assistant vice
president and co-director of managed futures. In this capacity, Mr. Staniewicz
oversaw all aspects of forming and offering futures funds, including the
selection and monitoring of CTAs. Mr. Staniewicz received a B.A. in Economics
from Cornell University.
Ms. Melanie A. Caldwell is human resources and administrative director and a
member of the Operating Committee of JWH (NFA registration pending). Ms.
Caldwell is responsible for all aspects of human resources and facilities
management of JWH. Prior to joining JWH, in May 1995, Ms. Caldwell operated her
own facilities management consulting business from August 1992 to May 1995.
Prior to operating her own business, Ms. Caldwell was senior vice president of
Greenwich Capital Markets, Inc., a primary dealer in fixed income securities,
from March 1985 to July 1992. Ms. Caldwell received her B.S. in Sociology and
M.S. in Industrial Relations from Purdue University.
Mr. Andrew D. Willard is director of technology at JWH and a member of the
Operating Committee of JWH (NFA registration pending). Mr. Willard is
responsbile for all aspects of the JWH technology infrastructure, including
future development. He joined JWH in August 1995 after a 20-year career starting
in January 1973 at Bankers Trust Company in London, Hong Kong and, most
recently, New York where he was head of technology for the bank's International
Investment Management Divisions. He also served on the bank's steering committee
setting company-wide policies for future use of technology. Prior to his most
recent position at Bankers Trust Company in New York, Mr. Willard was
responsible for all technology support for the bank's offices in Japan, Hong
Kong and Singapore. He attended London Nautical College.
LEGAL AND ETHICAL CONCERNS
There neither now exists nor has there ever previously been any
administrative, civil, or criminal action against JWH or its principals which is
material, except that in September 1996, JWH was named as a co-defendant in
purported class action lawsuits filed in the California Superior Court, Los
Angeles County and in the New York Supreme Court, New York County. In November
1996, JWH was named as a co-defendant in a purported class action complaint
filed in the Superior Court of the State of Delaware, New Castle County that
contained the same allegations as the New York and California complaints. The
actions, which seek unspecified damages, purport to be brought on behalf of
investors in certain DWR commodity pools, some of which are advised by JWH, and
are primarily directed at DWR's alleged fraudulent selling practices in
connection with the marketing of those pools. These actions are the same matters
as those discussed under "Certain Litigation" below. JWH is essentially alleged
to have aided and abetted or directly participated with DWR in those practices.
JWH believes the allegations against it are without merit; it intends to contest
these allegations vigorously and is convinced that it will be shown to have
acted properly and in the best interest of investors.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same or opposite from client positions due to testing a
new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods, and on occasion orders may get
better fills than the client accounts. Records for these accounts will not be
made available to clients. Employees and principals of JWH (other than Mr.
Henry)
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are not permitted to trade on a discretionary basis in futures, options on
futures or forward contracts. However, such principals and employees may invest
in investment vehicles that trade futures, options on futures, or forward
contracts, when an independent trader manages trading in that vehicle, and in
the JWH Employee Fund, L.P., which is managed by JWH. The records of these
accounts also will not be made available to clients.
THE OPERATING COMMITTEE
The Operating Committee is the senior management group at JWH and is
responsible for the development and implementation of JWH's long-term strategies
and objectives. The Operating Committee also coordinates and oversees JWH's
daily operations.
THE INVESTMENT POLICY COMMITTEE (THE "IPC")
The IPC is one vehicle for decision-making at JWH about the content and
application of JWH trading programs. Composition of the IPC, and participation
in its discussions and decisions by non-members, may vary over time. The IPC is
an interdepartmental advisory body which meets periodically to discuss issues
relating to the JWH trading programs and their application to markets, including
research on markets and strategies in relation to the proprietary trading models
employed by JWH. JWH's proprietary research group may determine new markets
which should be traded in given portfolios, or determine markets which should be
removed from given portfolios. Non-proprietary recommendations from research are
then presented to and discussed by the IPC, which may recommend them to the
Chairman for approval. Proprietary research findings are reviewed directly by
the Chairman before implementation. All recommendations of the IPC are subject
to final approval by the Chairman. The IPC does not make particular trading
decisions. The trading department initiates and liquidates positions and manages
JWH portfolios in accordance with the firm's proprietary trading methodology,
which is not overruled unless JWH's Chief Trader or Director of Trading
Administration determines that doing so is in the best interest of clients. No
trade indications are overruled without the express approval of the Chairman.
The Chairman may also notify the Trading Department at any time of special
situations which he deems may require a modification in applying the
methodology.
THE JWH TRADING APPROACH
JWH specializes in managing institutional and individual capital in the
global futures, interest rate and foreign exchange markets. Since 1981, JWH has
developed and implemented proprietary trend-following trading techniques that
focus on long-term trends rather than short-term, day-to-day trends. Each JWH
trading system is a technical trend-following system.
THE JWH INVESTMENT PHILOSOPHY
The basis of the JWH investment philosophy is that prices for all financial
instruments reflect human reactions to external events. Accordingly, it can be
expected that a series of political, economic, social or environmental events
will create patterns of price movements, or trends. When a sequence of similar
events is repeated at a later time, the price trends often reoccur. JWH programs
attempt to capture the profit opportunities created by sustained market
movements.
By conducting analysis on historic price data for commodity markets, the
firm's founder, John W. Henry, developed proprietary systems designed to
identify important price trends and determine optimal entry and exit points.
JWH's comprehensive research has also led to the development of quantitative
models which suggest the appropriate content and weighting for each position in
a global portfolio.
The investment philosophy of JWH is supported by intensive risk management
and continuing research to enhance the application of the underlying
methodologies. Risk is measured and managed in a variety of ways. Within client
portfolios, individual positions are monitored on a stand-alone and
portfolio-weighted basis. Positions are matched with stop-loss provisions which
are altered regularly to reflect changing market conditions.
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For more than a decade, JWH has recognized the importance of global trading.
Financial markets around the world are increasingly interrelated, with actions
in one country's markets often influencing markets in other parts of the world.
Many of the JWH investment programs maintain positions in a variety of worldwide
markets in seeking to achieve material benefits from the opportunities
presented.
Although price trends are the ultimate product of markets, there are
procedures built into JWH's programs that have been designed to affect trading
efficiency and preserve client capital. JWH's research on these and other issues
has materially improved risk-adjusted performance for clients over the past few
years.
A DISCIPLINED INVESTMENT PROCESS
Regardless of recent performance in any one market, or widely held opinions
on future market direction, JWH maintains a disciplined investment process. The
consistent application of JWH's investment techniques facilitates the ability to
participate in rising or falling markets without bias.
The first step in the JWH investment process is the identification of
sustained price movements-- or trends--in a given market. While there are many
ways to identify trends, JWH uses mathematical models that attempt to
distinguish real trends from interim volatility. It also presumes that trends
often exceed in duration the expectation of the general marketplace.
JWH's historical performance demonstrates that, because trends often last
longer than most market participants expect, significant returns can be
generated from positions held over a long period of time. As such, JWH attempts
to pare losing positions relatively quickly while allowing profitable positions
to mature. Most losing positions are closed within a few days or weeks, while
others--those where a profitable trend continues--are retained. Positions held
for two to four months are not unusual, and positions have been held for more
than one year. Historically, only thirty to forty percent of all trades made
pursuant to the investment methods have been profitable. Large profits on a few
trades in positions that typically exist for several months have produced
favorable results overall. Generally, most losing positions are liquidated
within weeks. The maximum equity retracement JWH has experienced in any single
program was nearly sixty percent. Clients should understand that similar or
greater drawdowns are possible in the future.
To reduce exposure to volatility in any particular market, most JWH programs
participate in several markets at one time. In total, JWH participates in up to
60 markets, encompassing interest rates, foreign exchange, and commodities such
as agricultural products, energy and precious metals. Most investment programs
maintain a consistent portfolio composition to allow opportunities in as many
major market trends as possible.
Throughout the investment process, risk controls are maintained to reduce
the possibility of an extraordinary loss in any one market. Proprietary research
is conducted on an ongoing basis to refine the JWH investment strategies and
attempt to reduce volatility while maintaining the potential for excellent
performance.
JWH at its sole discretion may override computer-generated signals and may
at times use discretion in the application of its quantitative models which may
affect performance positively or negatively. Subjective aspects of JWH's
quantitative models also include the determination of leverage, commencement of
trading an account, contracts and contract months, and effective trade
execution.
PROGRAM MODIFICATIONS
In an effort to maintain and improve performance, JWH has engaged, and
continues to engage in an extensive program of research. While the basic
philosophy underlying the firm's investment methodology has remained intact
throughout its history, the potential benefits of employing more than one
investment methodology alternatively, or in varying combinations, is a subject
of continual testing, review and evaluation. Extensive research and analysis may
suggest substitution of alternative methodologies with respect to particular
contracts in light of relative differences in historical performance
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achieved through testing different parameters. In addition, risk management
research and analysis may suggest modifications regarding the relative weighting
among various contracts, the addition or deletion of particular contracts for a
program or a change in the degree of leverage employed.
As capital in each JWH program increases, additional emphasis and weighting
may be placed on certain markets which have historically demonstrated the
greatest liquidity and profitability. Furthermore, the weighting of capital
committed to various markets in the trading programs is dynamic, and JWH may
vary the weighting at its discretion as market conditions, liquidity, position
limit considerations and other factors warrant. Investors will not be informed
of the changes.
LEVERAGE
Leverage adjustments have been and continue to be an integral part of JWH's
investment strategy. At its discretion, JWH may adjust leverage in certain
markets or entire programs. Leverage adjustments may be made at certain times
for some programs but not for others. Factors which may affect the decision to
adjust leverage include: ongoing research, program volatility, current market
volatility, risk exposure, and subjective judgement and evaluation of these and
other general market conditions. Such decisions to change leverage may
positively or negatively affect performance, and will alter risk exposure for an
account. Leverage adjustments may lead to greater profits or losses, more
frequent and larger margin calls, and greater brokerage expense. No assurance is
given that such leverage adjustments will be to the financial advantage of JWH
clients. JWH reserves the right, in its sole discretion, to adjust its leverage
policy without notification to investors.
ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL OR FUND
ACCOUNTS
JWH has developed procedures for investing fund accounts that provide for
additions, redemptions and/or reallocations of capital. Investors who purchase
or redeem units in a fund are most frequently permitted to do so at a price
equal to the net asset value per unit on the close of business on the last
business day of each month or quarter. In addition, funds may reallocate capital
among advisors at the close of business on the last business day of each month.
In order to provide market exposure commensurate with the equity in the account
on the date of these transactions, JWH's general practice is to adjust positions
at a time as near as possible to the close of business on the last trading date
of each month. The intention is to provide for additions, redemptions and
reallocations at a net asset value per unit that will be the same for each of
these transactions and to eliminate possible variations in net asset value per
unit that could occur as a result of price changes if, for example, all
additions were calculated on the first day of the subsequent month. Therefore,
JWH may, in its sole discretion, adjust its investment of the assets associated
with the addition, redemption and reallocation of capital at a time as close as
possible to the close of business on the last business day of each month to
reflect the amount then available for trading. Based on JWH's determination of
liquidity and other market conditions, JWH may decide to commence trading
earlier in the day on, or before, the last business day of the month or, in its
sole discretion, delay adjustments to trading for an account to a date or time
after the close of business on the last day of the month. No assurance is given
that JWH will be able to achieve the objectives described above in connection
with the funding level changes. The use of discretion by JWH in the application
of this procedure may affect performance positively or negatively.
PHYSICAL OR CASH COMMODITIES
In addition to futures contracts, JWH may from time to time for certain
clients trade spot and forward contracts on physical or cash commodities,
including specifically gold bullion, when it believes that such markets offer
comparable or superior market liquidity or a greater ability to execute
transactions at a single price. Such transactions, as opposed to futures
transactions, relate to the purchase and sale of specific physical commodities.
Whereas futures contracts are generally uniform except for price and delivery
time, cash contracts may differ from each other with respect to such terms as
quantity, grade, mode of shipment, terms of payment, penalties, risk of loss and
the like. There is no limitation on the daily price movements of spot or forward
contracts transacted through banks, brokerage firms or dealers, and those
entities are not required to continue to make markets in any commodity. In
addition, the CFTC does not comprehensively regulate such transactions, which
are
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subject to the risk of the foregoing entities' failure, inability or refusal to
perform with respect to such contracts. No such trading has previously been
undertaken on behalf of the Partnership, nor will any such trading be undertaken
on behalf of the Partnership without the consent of the General Partner. It has
not been determined at this time whether any such trading will be undertaken on
behalf of the Partnership in the future.
The JWH programs often make trades in markets that have lower trading volume
and are less liquid, such as the markets for coffee, cotton and certain
currencies. JWH operates each JWH program as a completely separate and
independent program.
Historically, the assets of the Partnership were traded pursuant to JWH's
InterRate-TM- (a trading program no longer operated by JWH), Financial and
Metals Portfolio, The World Financial Perspective, Global Diversified Portfolio
and International Foreign Exchange Program. However, the General Partner, by
agreement with the Trading Advisor, will reallocate the Partnership's funds
among the Trading Advisor's various trading programs in proportions different
than previously employed, and will allocate assets of the partnership to trading
systems of the Trading Advisor that were not previously utilized for the
Partnership. It is the intention of the General Partner and the Trading Advisor,
effective approximately as of the date of the Closing, that the Partnership's
assets will be allocated 20% to each of the Original Investment Program, the
Financial and Metals Portfolio, The World Financial Perspective, the Global
Financial Portfolio, and the International Currency and Bond Portfolio. The
percentage of the Partnership's assets allocated to the various programs of the
Trading Advisor may change at any time and from time to time as a result of
reallocations upon the agreement of the General Partner and the Trading Advisor,
which shall be at their collective discretion, and will change as a result of
profits and losses in each such program.
DESCRIPTION OF JWH'S TRADING PROGRAMS
ORIGINAL INVESTMENT PROGRAM
The Original Investment Program, the first program offered by JWH, offers
access to a spectrum of worldwide financial and nonfinancial futures markets
using a disciplined trend identification investment approach. This program has
enjoyed an improved risk/reward profile since 1992, when the sector allocation
was altered and enhanced risk management procedures were implemented. The
Original Investment Program utilizes a long-term quantitative approach which
always maintain a position-- long or short--in every market traded by the
program.
FINANCIAL AND METALS PORTFOLIO
The Financial and Metals Portfolio attempts to deliver attractive
risk-adjusted returns in global financial and precious metals markets. Currency
positions are held both as outrights--trading positions taken in foreign
currencies versus the U.S. dollar--and cross rates--trading foreign currencies
against each other--in the interbank market and occasionally futures exchanges.
This program is designed to identify and capitalize on intermediate and
long-term price movements in these markets using a systematic approach to ensure
disciplined investment decisions. If a trend is identified, the program attempts
to take a position; in nontrending market environments, the program may remain
neutral or liquidate open positions.
THE WORLD FINANCIAL PERSPECTIVE
The World Financial Perspective seeks to capitalize on market opportunities
by holding positions from multiple currency perspectives, including the British
pound, German mark, Japanese yen, Swiss franc and U.S. dollar. This program is
designed to systematically identify long-term price movements in financial,
metals and energy markets. The World Financial Perspective always maintains a
futures position--long or short--in every market traded by the program.
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GLOBAL FINANCIAL PORTFOLIO
Global Financial Portfolio offers access to a small group of energy and
financial markets, including global currencies, interest rates and stock
indices. This program is designed to identify and capitalize on long-term price
movements using a disciplined trend identification approach. This program always
maintains a futures position--long or short--in every market traded by the
program
INTERNATIONAL CURRENCY AND BOND PORTFOLIO
Using a more conservative approach compared to the leverage used in the
other JWH programs, the International Currency and Bond Portfolio (ICB) targets
the long end of interest rate and currency futures of major industrialized
nations. Foreign exchange positions are held both as outrights--trading
positions taken in foreign currencies versus the U.S. dollar--and cross
rates--trading foreign currencies against each other. ICB is designed to
identify and capitalize on intermediate and long-term price movements in the
world's bond and foreign exchange markets using a systematic approach to ensure
disciplined investment decisions. If a trend is identified, the program will
take a position; in nontrending market environments, the program may liquidate
positions and remain neutral.
The International Foreign Exchange Program (Forex) invests in a broad range
of major and minor currencies primarily in the highly liquid interbank market.
Positions are taken as outrights or cross rates. Forex is designed to identify
and capitalize on intermediate-term price movements in these markets.
The Global Diversified Portfolio invests in futures and forwards contracts
traded on domestic and foreign exchanges in over 60 markets. The program is
designed to indentify and capitalize on intermediate and long-term price
movements.
The JWH programs listed above were trading in the following sectors as of
December 31, 1996: agriculture, energy, precious and base metals, foreign
exchange, global stock indices, bonds, U.S. interest rates, European interest
rates, and Pacific Rim interest rates.
As of December 31, 1996, the aggregate amount of funds under management
pursuant to the trading programs then being employed for the Partnership were:
Financial and Metals Portfolio, $1,182,736,149; The World Financial Perspective,
$21,916,179; the Global Diversified Portfolio, $161,765,331 (including notional
funds); and the International Foreign Exchange Program, $69,780,961. For the
additional trading programs that the General Partner and the Trading Advisor
expect to be trading for the Partnership approximately as of the date of the
Closing, the Global Financial Portfolio, the Original Investment Program, and
the International Currency and Bond Portfolio, the aggregate amount of funds
under management as of December 31, 1996 was $95,299,973, $236,557,401
(including notional funds), and $2,458,195, respectively. As of December 31,
1996 the aggregate amount of all funds under management pursuant to all JWH
programs was $1.9 billion.
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JOHN W. HENRY & COMPANY, INC.
ORIGINAL INVESTMENT PROGRAM
Although the Original Investment Program did not trade a portion of the
assets of the Partnership as of December 31, 1996, effective approximately as of
the Closing, 20% of the Partnership's assets are expected to be allocated to
this program.
<TABLE>
<S> <C>
Name of CTA: John W. Henry & Company, Inc.
Name of program: Original Investment Program*
Inception of client trading by CTA: October 1982
Inception of client trading in program: October 1982
Number of open accounts: 27
Aggregate assets overall: $1.9 billion
Aggregate assets in program (including notional funds): $236.6 million
Aggregate assets in program (excluding notional funds): $223.9 million
Largest monthly drawdown: (18.1)%--(2/92)
Largest month-end peak-to-valley drawdown:
(62.1)%--(6/88-5/92)
1996 annual return: 22.6%
1995 annual return: 53.2%
1994 annual return: (5.7)%
1993 annual return: 40.6%
1992 annual return: 10.9%
</TABLE>
* In November 1994, one proprietary account commenced trading pursuant to an
investment in a fund. This proprietary account is traded in exactly the same
manner that client funds would be traded, and is subject to all of the same
fees and expenses that would be charged to a client investment in the fund;
therefore there is no material impact on the rates of return presented.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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JOHN W. HENRY & COMPANY, INC.
FINANCIAL AND METALS PORTFOLIO
The following reflects the composite performance information of JWH's
Financial and Metals Portfolio, which, as of December 31, 1996, traded a
majority of the assets of the Partnership, and effective approximately as of the
Closing, 20% of the Partnership's assets are expected to be allocated to this
program.
<TABLE>
<S> <C>
Name of CTA: John W. Henry & Company, Inc.
Name of program: Financial and Metals Portfolio*
Inception of client trading by CTA: October 1982
Inception of client trading in program: October 1984
Number of open accounts: 44
Aggregate assets overall: $1.9 billion
Aggregate assets in program: $1.2 billion
Largest monthly drawdown: (27.7)%--(1/92)
Largest month-end peak-to-valley drawdown:
(58.8)%--(12/91-5/92)
1996 annual return: 29.7%
1995 annual return: 38.5%
1994 annual return: (5.3)%
1993 annual return: 46.8%
1992 annual return: (10.9)%
</TABLE>
* In May 1991 one proprietary account began trading and in March 1992 a second
proprietary account began trading pursuant to the Financial and Metals
Portfolio. Both accounts appear in the capsule performance from their
inception until August 1995. The maximum percentage of proprietary funds
during this time was less than 0.5%.
Beginning in May 1992, 35% of the assets in the Financial and Metals
Portfolio were deleveraged 50% at the request of a client. The deleveraging
materially affected the rates of return in JWH's track records. The 1992
annual rate of return for these deleveraged accounts was (24.3)%. The 1992
annual rate of return for the Financial and Metals Portfolio Composite Track
Record was (10.9)%. If these accounts had been excluded from the Financial
and Metals Portfolio track record, the 1992 annual rate of return would be
(3.9)%. The effect of this deleveraging was eliminated in September 1992.
The Financial and Metals Composite Performance Capsule includes the
performance of several accounts that do not participate in global markets
due to their smaller account equities which do not meet the minimums
established for this program. Accounts not meeting such minimums can
experience performance materially different than the performance of an
account which meets the minimum account size. The performance of such
accounts has no material effect on the overall Financial and Metals
Composite Performance Capsule.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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JOHN W. HENRY & COMPANY, INC.
THE WORLD FINANCIAL PERSPECTIVE
The following reflects the composite performance information of JWH's The
World Financial Perspective, which, as of December 31, 1996, traded a portion of
the assets of the Partnership, and effective approximately as of the Closing,
20% of the Partnership's assets are expected to be allocated to this program.
<TABLE>
<S> <C>
Name of CTA: John W. Henry & Company, Inc.
Name of program: The World Financial Perspective
Inception of client trading by CTA: October 1982
Inception of client trading in program: April 1987
Number of open accounts: 4
Aggregate assets overall: $1.9 billion
Aggregate assets in program: $21.9 million
Largest monthly drawdown: (25.5)%--(1/92)
Largest month-end peak-to-valley drawdown:
(38.4)%--(12/91-10/92)
1996 annual return: 40.9%
1995 annual return: 32.2%
1994 annual return: (15.2)%
1993 annual return: 13.7%
1992 annual return: (23.2)%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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JOHN W. HENRY & COMPANY, INC.
GLOBAL FINANCIAL PORTFOLIO
Although the Global Financial Portfolio did not trade a portion of the
assets of the Partnership as of December 31, 1996, effective approximately as of
the date of the Closing, 20% of the Partnership's assets are expected to be
allocated to this program.
<TABLE>
<S> <C>
Name of CTA: John W. Henry & Company, Inc.
Name of program: Global Financial Portfolio*
Inception of client trading by CTA: October 1982
Inception of client trading in program: June 1994
Number of open accounts: 5
Aggregate assets overall: $1.9 billion
Aggregate assets in program: $95.3 million
Largest monthly drawdown: (19.5)%--(11/94)
Largest month-end peak-to-valley drawdown:
(48.9)%--(6/94-1/95)
1996 annual return: 32.4%
1995 annual return: 86.2%
1994 period return (7 months): (37.7)%
</TABLE>
* In July 1995, one proprietary account commenced trading pursuant to an
investment in a fund. This proprietary account is traded in exactly the same
manner that client funds would be traded, and is subject to all of the same
fees and expenses that would be charged to a client investment in the fund;
therefore there is no material impact on the rates of return presented.
Since the inception of the Global Financial Portfolio, the timing of
individual account openings has had a material impact on compound rates of
return. Based on the account startup methodology used by JWH, the
performance of individual accounts composing the Global Financial Portfolio
composite performance summary has varied. In 1994, the two accounts that
were open generated separate rates of return of negative 44% and negative
17%, respectively. For the period January 1995 through June 1995, the three
open accounts achieved separate rates of return of 101%, 75% and 67%,
respectively. As of June 1995, these accounts now maintain mature positions
and are performing consistently with each other. Due to the six month period
in 1995 of varied performance, the three accounts achieved an annual rate of
return for 1995 of 122%, 92% and 78% respectively.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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JOHN W. HENRY & COMPANY, INC.
INTERNATIONAL CURRENCY AND BOND PORTFOLIO
Although the International Currency and Bond Portfolio did not trade a
portion of the assets of the Partnership as of December 31, 1996, effective
approximately as of the Closing, 20% of the Partnership's assets are expected to
be allocated to this program.
<TABLE>
<S> <C>
Name of CTA: John W. Henry & Company, Inc.
Name of program: International Currency and Bond Portfolio*
Inception of client trading by CTA: October 1982
Inception of client trading in program: January 1993
Number of open accounts: 1
Aggregate assets overall: $1.9 billion
Aggregate assets in program: $2.5 million
Largest monthly drawdown: (7.8)%--(7/94)
Largest month-end peak-to-valley drawdown: (23.6)%--(6/94-1/95)
1996 annual return: 19.9%
1995 annual return: 36.5%
1994 annual return: (2.3)%
1993 annual return: 14.8%
</TABLE>
* In October 1995, one proprietary account commenced trading pursuant to an
investment in a fund. This proprietary account is traded in exactly the same
manner that client funds would be traded, and is subject to all of the same
fees and expenses that would be charged to a client investment in the fund;
therefore there is no material impact on the rates of return presented.
JOHN W. HENRY & COMPANY, INC.
INTERNATIONAL FOREIGN EXCHANGE PROGRAM
The following reflects the composite performance information of JWH's
International Foreign Exchange Program, which, as of December 31, 1996, traded a
portion of the assets of the Partnership, but is not expected to continue to do
so as of the Closing, but may do so in the future.
<TABLE>
<S> <C>
Name of CTA: John W. Henry & Company, Inc.
Name of program: International Foreign Exchange Program
Inception of client trading by CTA: October 1982
Inception of client trading in program: August 1986
Number of open accounts: 7
Aggregate assets overall: $1.9 billion
Aggregate assets in program: $69.8 million
Largest monthly drawdown: (13.6)%--(1/92)
Largest month-end peak-to-valley drawdown:
(35.9)%--(8/92-1/95)
1996 annual return: 3.7%
1995 annual return: 16.9%
1994 annual return: (6.3)%
1993 annual return: (4.5)%
1992 annual return: 4.5%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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JOHN W. HENRY & COMPANY, INC.
GLOBAL DIVERSIFIED PORTFOLIO
The following reflects the composite performance information of JWH's Global
Diversified Portfolio, which, as of December 31, 1996, traded a portion of the
assets of the Partnership, but is not expected to continue to do so as of the
Closing, but may do so in the future.
<TABLE>
<S> <C>
Name of CTA: John W. Henry & Company, Inc.
Name of program: Global Diversified Portfolio*
Inception of client trading by CTA: October 1982
Inception of client trading in program: June 1988
Number of open accounts: 14
Aggregate assets overall: $1.9 billion
Aggregate assets in program (including notional funds): $161.8 million
Aggregate assets in program (excluding notional funds): $149.9 million
Largest monthly drawdown on an individual account basis: (20.3)%--(7/91)
Largest month-end peak-to-valley drawdown:
(33.2)%--(12/91-5/92)
1996 annual return: 26.9%
1995 annual return: 19.6%
1994 annual return: 10.1%
1993 annual return: 59.8%
1992 annual return: (12.6)%
</TABLE>
* From July 1995 through December 1995 one proprietary account was trading
pursuant to an investment in a fund. The proprietary account is traded in
exactly the same manner that client funds would be traded, and is subject to
all of the same fees and expenses that would be charged to a client
investment in the fund; therefore there is no material impact on the rates
of return presented.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
OTHER JWH PROGRAMS
In addition to the Original Investment Program, the Financial and Metals
Portfolio, The World Financial Perspective, the Global Financial Portfolio, the
International Currency and Bond Portfolio, the International Foreign Exchange
Program, and the Global Diversified Portfolio (each of which the Partnership
either has allocated assets to in the past, will allocate assets to effective as
of the Closing, or both, in each case as specified above), JWH currently
operates five different programs for U.S. and foreign investors, none of which,
as of December 31, 1996, were utilized nor expected to be utilized as of the
Closing by JWH for the Partnership. The Partnership did, however, utilize
InterRate-TM-, a trading program no longer operated by JWH. Each program is
operated separately and independently. These programs are intermediate and
long-term, quantitative, trend-analysis models designed to achieve speculative
rates of return.
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JOHN W. HENRY & COMPANY, INC.
NOTES ON PERFORMANCE RECORDS
An investor should note that in a presentation of past performance data,
different accounts, even though traded according to the same investment program,
can have varying performance results. The reasons for this include numerous
material differences among accounts including, a) the period during which
accounts are active; b) trading size to equity ratio resulting from procedures
for the commencement of trading and appropriate means of moving toward full
portfolio commitment of new accounts and new capital; c) the size of the
account, which can influence the size of positions taken and restrict the
account from participating in all markets available to an investment program; d)
the amount of interest income earned by an account which will depend on the
rates paid by futures commission merchants on equity deposits and/or on the
portion of an account invested in interest-bearing obligations such as U.S.
Treasury bills; e) the amount of management and incentive fees paid to an
investment manager and the amount of brokerage commissions paid which will vary
and will depend on the fees negotiated by the client with the broker; f) the
timing of orders to open or close positions; g) the market conditions, which in
part determine the quality of trade executions; h) client trading restrictions,
including futures vs. forward contracts and contract months; i) procedures
governing timing for the commencement of trading and means of moving towards
full portfolio commitment of new accounts; j) variations in fill prices; and k)
the timing of additions and withdrawals.
For the purpose of determining whether there exist material differences
among accounts traded pursuant to the same trading program, JWH utilizes the
method described herein. The gross trading performance of each JWH investment
program and each individual JWH account within the relevant program is reviewed
and the following parameters established by interpretations of the Division of
Trading and Markets of the CFTC are calculated: (i) if the arithmetic average of
two percentages is greater than 10 percentage points and the difference between
the two is less than 10% of their average; (ii) if the arithmetic average of the
two percentages is greater than 5 points but less than 10 points and the
difference between the two is 1.5 percentage points or less; and (iii) if the
arithmetic average of the two percentages is less than 5 points and the
difference between the two is 1.0 percentage point or less. If one of the
parameters (i) - (iii) is satisfied in the review, then the results within the
designated range are deemed "materially the same" or "not materially different."
The parameters (i) - (iii) determine if differences between accounts are
materially different. JWH further evaluates performance on a gross trading basis
for materiality in an overall context each JWH investment program and each
individual JWH account within the relevant program not satisfying the above
parameters whether any material differences that are detected could be
misleading after review of the reasons for the differences.
During the periods covered by the JWH performance records, JWH increased and
decreased leverage in certain markets and entire investment programs, and also
altered which markets and contracts it traded for certain programs. In general,
before 1993, JWH programs used greater leverage than they currently do. In
addition, the subjective aspects listed under the "A Disciplined Investment
Process" section on page 61 have been utilized more often in recent years and
therefore may have had a more pronounced effect on performance during recent
periods. The use of different investment programs (although all accounts in a
program are traded in accordance with the same approach, such approach may be
modified periodically as a result of ongoing research and development by JWH)
will have an effect on performance results. In reviewing the JWH performance
records, prospective investors should bear in mind the possible effects of these
variations on the application of JWH's trading methods and rates of return.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the tables. Investors are further cautioned that the data set
forth in the performance capsules is not indicative of any trading results which
may be attained by JWH in the future since past performance is not necessarily
indicative of future results. On several occasions, JWH has decreased leverage
over the last five years, in certain markets and for entire programs. These
actions have reduced the volatility of certain programs when compared to
volatility
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prior to the decrease in leverage. While historical returns represent actual
performance achieved, investors should be aware that the degree of leverage
currently utilized may be significantly different from that used during previous
time periods.
Prior to December 1991, capsule performance records are presented on a cash
basis, except as otherwise stated in the footnotes to the records. Using a cash
basis accounting system should not, for most months, yield a materially
different rate of return than would have been yielded using an accrual basis
accounting system. Any differences in the monthly rates of return between the
two methods would be immaterial to the overall performance presented. Beginning
with the change to the accrual basis of accounting for incentive fees in
December 1991, the net effect on monthly net performance and the rate of return
in the capsule performance records of continuing to record interest income on a
cash basis is materially equivalent to the full accrual basis. In January 1993,
JWH began reflecting all items of net performance on an accrual basis for the
International Currency and Bond Portfolio Composite Capsule Performance Record.
Advisory fees vary among accounts in the case of all programs. Management
fees vary from 0% to 6% of assets under management; incentive fees vary from 0%
to 25% of profits. Such variations may have a material impact on the performance
of an account from time to time.
Due to the commencement of trading in July 1996 by a new multi-program fund
managed by the Trading Advisor, the Trading Advisor developed a new method for
treating the accrual of incentive fees for the multi-advisor funds and
multi-program accounts it manages. For these accounts, JWH agreed that it would
earn incentive fees only when overall fund performance for multi-advisor funds,
or overall JWH performance for multi-program accounts, as the case may be, is
profitable. As applied, this new method presents incentive fees due for each
program on a stand-alone basis--in essence, to reflect the performance results
that would have been experienced by an investor in that program, regardless of
any external business arrangements (such as a multi-advisor structure or the use
of multiple JWH programs) that might have affected actual incentive fees paid.
The new method was applied initially in August 1996 performance. In that month,
a one-time adjustment to performance rate of return was made to each affected
program to show the impact of this adjustment from program inception through
August 1996. In the case of certain programs, the adjustment had a material,
I.E., greater than 10%, impact on the rate of return that otherwise would have
been shown. In the case of accounts that closed before JWH received an incentive
fee due to the operation of such netting arrangements, a balancing entry was
made to offset the effect of incentive fee accrual on ending equity.
NOTES TO JWH INVESTMENT PROGRAMS CAPSULE PERFORMANCE RECORDS
Number of open accounts is the number of accounts directed by JWH pursuant
to the investment program shown as of December 31, 1996.
Assets under management in each program is the aggregate amount of total
equity, including "notional" equity under management of JWH in the Investment
Program shown as of December 31, 1996.
Largest monthly drawdown is the largest monthly loss experienced by any
single account in the relevant investment program in any calendar month covered
by the capsule. "Loss" for these purposes is calculated on the basis of the loss
experienced by the individual account, expressed as a percentage of total equity
(including "notional" equity) in the account. Largest monthly drawdown
information includes the month and year of such drawdown.
Largest peak-to-valley drawdown is the largest percentage decline by any
single account in the relevant investment program (after eliminating the effect
of additions and withdrawals) during the period covered by the capsule from any
month-end net asset value, without such month-end net asset value being equaled
or exceeded at a subsequent month-end by the individual account, expressed as a
percentage of the total equity (including "notional" equity) in the account.
Individual accounts managed by JWH may have experienced larger peak-to-valley
drawdowns.
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Annual Rate of Return is calculated by compounding the monthly rates of
return over the number of months in a given year. For example, each month's
monthly rate of return in hundredths is added to one (1) and the result is
multiplied by the previous month's compounded monthly rate of return similarly
expressed. One (1) is then subtracted from the product. For periods of less than
one year, the results are year-to-date.
Monthly Rates of Return are calculated by dividing net performance by the
sum of the beginning equity, plus additions minus withdrawals. For such purposes
all additions and withdrawals are effectively treated as if they had been made
on the first day of the month even if, in fact, they occurred later, unless,
beginning in December 1991, they are material to the performance of a program,
in which case they are time weighted. If time weighting is materially
misleading, then only the Accounts Traded method is utilized.
ADDITIONAL NOTES FOR CAPSULE PERFORMANCE RECORDS (THE "CAPSULES") UTILIZING THE
FULLY FUNDED SUBSET METHOD (JWH GLOBAL DIVERSIFIED PORTFOLIO)
The level of "Actual Funds" in the accounts that make up the capsules
currently requires additional disclosure. Actual Funds are the amount of
margin-qualifying assets on deposit. "Nominal Account Size" is a dollar amount
which clients have agreed to in writing and which determines the level of
trading in the accounts regardless of the amount of Actual Funds. "Notional
Funds" are the amount by which the Nominal Account Size exceeds the amount of
Actual Funds. The amount of Notional Funds in the accounts that compose the
records requires additional disclosure under current CFTC policy. The capsules
include Notional Funds in excess of the 10% disclosure threshold established by
the CFTC and reflect the adoption of a method of presenting rate-of-return and
performance disclosure authorized by the CFTC, referred to as the "Fully Funded
Subset" method. This method permits notional and fully funded accounts to be
included in a single performance record.
To qualify for use of the Fully Funded Subset method, an Advisory issued by
the CFTC requires that certain computations be made in order to arrive at the
Fully Funded Subset, and that the accounts for which performance is so reported
meet two tests which are designed to provide assurance that the Fully Funded
Subset and the resultant "Adjusted Rates of Return" are representative of the
programs.
These computations were performed for the Global Diversified Portfolio from
January 1, 1992 until June 30, 1996. They were designed to provide assurance
that the performance presented in the capsules and calculated on a Fully Funded
Subset basis would be representative of such performance calculated on a basis
which includes notional equity in beginning equity, which is the denominator in
the calculation of rate of return. The Adjusted Rates of Return in the capsules
are calculated by dividing net performance for a period by the sum of beginning
equity plus additions minus withdrawals for that period. JWH believes that this
method yields substantially the same adjusted rates of return as would the Fully
Funded Subset method were there any "fully funded" accounts, and that the
Adjusted Rates of Return for the capsules are representative of the programs for
the periods presented.
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THE COMMODITY BROKER
DESCRIPTION OF THE COMMODITY BROKER
Dean Witter Reynolds Inc. ("DWR"), a Delaware corporation, is the commodity
broker for the Partnership. DWR is also the commodity broker for the other
commodity pools for which the General Partner serves as general partner and
commodity pool operator.
DWR is a principal operating subsidiary of DWD, a publicly-owned company
(see "The General Partner" as to the proposed merger of DWD and Morgan Stanley).
DWR is a financial services company that provides to its individual, corporate,
and institutional clients services as a broker in securities and futures
interests, a dealer in corporate, municipal, and government securities, an
investment banker, an investment adviser, and an agent in the sale of life
insurance and various other products and services. DWR is a member firm of the
New York Stock Exchange, the American Stock Exchange, the Chicago Board Options
Exchange, other major securities exchanges, and the National Association of
Securities Dealers, Inc. ("NASD"), and is a clearing member of the Chicago Board
of Trade, the Chicago Mercantile Exchange, the Commodity Exchange Inc., and
other major commodities exchanges. DWR is registered with the CFTC as a futures
commission merchant and is a member of the NFA in such capacity. DWR is
currently servicing its clients through a network of over 375 domestic and
international offices with over 9,100 account executives servicing individual
and institutional client accounts.
BROKERAGE ARRANGEMENTS
The Partnership's brokerage arrangements with DWR, including the caps
imposed on certain expenses, are discussed in "Conflicts of Interest--Customer
Agreement with DWR," "Description of Charges to the Partnership--2. Dean Witter
Reynolds Inc." and "--3. Other--(b) Transaction Fees and Costs."
The General Partner will review at least annually the brokerage arrangements
with the Partnership to ensure that such brokerage arrangements are fair,
reasonable, and competitive, and represent the best price and services
available, taking into consideration, in particular, when the commodity broker
is an "affiliate " of the General Partner (as such term is defined in the
Limited Partnership Agreement): (i) the size of the Partnership; (ii) the
futures interests trading activity; (iii) the services provided by the commodity
broker, the General Partner or any affiliate thereof to the Partnership; (iv)
the cost incurred by the commodity broker and the General Partner in this
offering of Units; (v) the overall costs to the Partnership; (vi) any excess
interest and compensating balance benefits to the commodity broker from assets
held thereby; and (vii) if the General Partner does not receive any direct
compensation from the Partnership for its services as General Partner, the risks
incurred by the General Partner as such. See "Conflicts of Interest."
The Customer Agreement sets forth a standard of liability for DWR and
provides for certain indemnities of DWR as Commodity Broker. See "Fiduciary
Responsibility."
CERTAIN LITIGATION
At any given time, DWR is involved in numerous legal actions, some of which
seek significant damages.
On May 16, 1996, an NASD arbitration panel awarded damages and costs against
DWR and one of its account executives in the amount of approximately $1.1
million, including punitive damages, to three customers who alleged, among other
things, fraud and misrepresentation in connection with their individually
managed futures accounts (not commodity pools).
On September 6, 10, and 20, 1996, and on March 13, 1997, similar purported
class actions were filed in the Superior Court of the State of California,
County of Los Angeles, on behalf of all purchasers of interests in limited
partnership commodity pools sold by DWR. Named defendants include DWR, Demeter
Management Corporation, Dean Witter Futures and Currency Management Inc., Dean
Witter, Discover & Co. (all such parties referred to hereafter as the "Dean
Witter Parties"), the Partnership
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(under its original name), certain other limited partnership commodity pools of
which Demeter is the general partner, and certain trading advisors (including
the Trading Advisor) to those 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 (including the Trading Advisor) on behalf of all
purchasers of interests in various limited partnership commodity pools,
including the Partnership, sold by DWR. Generally, these complaints allege,
among other things, that the defendants committed fraud, deceit,
misrepresentation, breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in connection with the sale and
operation of the various limited partnership commodity pools. The complaints
seek unspecified amounts of compensatory and punitive damages and other relief.
It is possible that additional similar actions may be filed and that, in the
course of these actions, other parties could be added as defendants. The Dean
Witter Parties believe that they and the Partnership have strong defenses to,
and they will vigorously contest, the actions. Although the ultimate outcome of
legal proceedings cannot be predicted with certainty, it is the opinion of
management of the Dean Witter Parties that the resolution of the actions will
not have a material adverse effect on the financial condition or the results of
operations of any of the Dean Witter Parties or the Partnership.
During the five years preceding the date of this Prospectus, there have been
(other than as described above) no material criminal, civil or administrative
actions pending, on appeal or concluded against DWR, Demeter or any of their
principals which DWR or Demeter believes would be material to an investor's
decision to invest in the Partnership.
THE MANAGEMENT AGREEMENT
The Trading Advisor has entered into a Management Agreement with the
Partnership and the General Partner which provides that the Trading Advisor has
sole authority and responsibility, except in certain limited situations, for
directing the investment and reinvestment of the Partnership's assets in futures
interests.
TERM
The Management Agreement has a term of two years, commencing from the date
of the Closing. Thereafter, the Trading Advisor may terminate the Management
Agreement, upon 90 days' prior written notice to the Partnership. In addition,
the Trading Advisor may terminate the Management Agreement upon 30 days' prior
written notice to the Partnership under certain circumstances specified therein.
The Management Agreement may also be terminated by the Partnership at any
month end without penalty upon 5 days' prior written notice to the Trading
Advisor, and at any time upon written notice under certain circumstances
specified therein.
No assurance is given that the Partnership will be able to retain the
services of a new trading advisor if the Management Agreement is terminated, or,
if such services are available, that they will be available on the same or
similar terms as those of the Management Agreement. The compensation payable by
the Partnership to the Trading Advisor for its services under the Management
Agreement is described under "Description of Charges to the Partnership--1. The
Trading Advisor."
LIABILITY AND INDEMNIFICATION
The Management Agreement sets forth a standard of liability for the Trading
Advisor and also provides for certain indemnities of the Trading Advisor. See
"Fiduciary Responsibility".
OBLIGATIONS TO THE PARTNERSHIP
The Trading Advisor is engaged in the business of advising investors as to
the purchase and sale of futures interests. During the term of the Management
Agreement, the Trading Advisor, its principals and affiliates, are free to
advise other investors as to the purchase and sale of futures interests, to
manage and trade such investors' futures interests accounts, to charge such
investors advisory fees at
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rates that are different from the rate charged the Partnership, and to trade for
and on behalf of their own proprietary accounts. However, under no circumstances
may the Trading Advisor or any of its principals and affiliates by any act or
omission favor (other than by charging different management and/or incentive
fees) any account advised or managed by the Trading Advisor or its principals
over the account of the Partnership in any way or manner. The Trading Advisor
will treat the Partnership in a fiduciary capacity to the extent recognized by
applicable law, but, subject to that standard, the Trading Advisor or any of its
principals and affiliates are free to advise and manage accounts of other
investors and are free to trade on the basis of the same trading systems,
methods, or strategies employed by the Trading Advisor on behalf of the
Partnership, or on the basis of trading systems, methods, or strategies that are
entirely independent of, or materially different from, those employed on behalf
of the Partnership, and are free to compete for the same futures interests as
the Partnership, or to take positions opposite to the Partnership, where such
actions do not knowingly or deliberately favor any of such accounts to the
Partnership's account.
REDEMPTIONS
Persons who have been Limited Partners for more than six months may redeem
all or part of their Units, regardless of when such Units were purchased, at any
month-end in the manner described herein. Such Units may be subject to
redemption charges as described herein. Persons who have been Limited Partners
for less than six months may first redeem Units effective as of the last day of
the sixth month following the Closing in the manner described herein. Such Units
may be subject to redemption charges as described herein.
Units redeemed on or prior to the last day of the twelfth month after such
Units were purchased will be subject to a redemption charge equal to 3% of the
Net Asset Value of a Unit on the date of such redemption. Units redeemed after
the last day of the twelfth month and on or prior to the last day of the
eighteenth month after which such Units were purchased will be subject to a
redemption charge equal to 2% of the Net Asset Value of a Unit on the date of
such redemption. Units redeemed after the last day of the eighteenth month and
on or prior to the last day of the twenty-fourth month after which such Units
were purchased will be subject to a redemption charge equal to 1% of the Net
Asset Value of a Unit on the date of such redemption. Units redeemed after the
last day of the twenty-fourth month after which such Units were purchased will
not be subject to a redemption charge. The foregoing redemption charges will be
paid to DWR. Notwithstanding the above, Units purchased by an investor who
purchases $500,000 or more of Units will not be subject to the foregoing
redemption charges, but will be subject to the other restrictions on
redemptions. Similarly, investors who are Limited Partners in the Partnership
immediately prior to the Closing will not be subject to the minimum six-month
holding period or the redemption charges, as described above, with respect to
Units purchased during the Offering Period.
In addition, a limited partner in any of the other commodity pools for which
the General Partner serves as the general partner and commodity pool operator
who redeemed all or a portion of his interest in one of such other partnerships
on or after June 30, 1996 and purchases Units will not be subject to the
foregoing redemption charges or restrictions under the circumstances described
below. The number of Units, expressed as a percentage of Units purchased, which
is not subject to a redemption charge or such other restrictions is determined
by dividing (a) the dollar amount received upon redeeming an interest in such
other partnership and used to purchase Units by (b) the total investment in the
Partnership. For example, a limited partner who receives $5,000 upon redeeming
all or a part of his interest in a commodity pool operated by the General
Partner and invests $10,000 in the Partnership will not be subject to a
redemption charge on 50% of his Units.
Redemptions may only be made in whole Units or in multiples of $1,000 (which
may result in a redemption of fractional Units), unless a Limited Partner is
redeeming his entire interest in the Partnership. Redemptions will be effective
as of the last day of the month ending after a Request for Redemption in proper
form has been timely received by the General Partner ("Redemption Date"). A
"Request for Redemption" is an irrevocable letter in the form specified by the
General Partner and
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received by the General Partner prior to 5:00 p.m. (New York time) at least 5
business days prior to the Redemption Date. A form of Request for Redemption is
annexed to the Limited Partnership Agreement which is annexed hereto as Exhibit
A. Additional forms of Request for Redemption may be obtained by a written
request to the General Partner or a local DWR branch office. In addition to the
information and reports described below under "The Limited Partnership
Agreement--Reports to Limited Partners," the General Partner will provide
Limited Partners with such other information and will comply with any such
procedures in connection with redemptions as in the future are specifically
required under SEC rules and policies for commodity pools and similar investment
vehicles.
The "Net Asset Value" of a Unit is the amount of Net Assets allocated to
capital accounts represented by Units divided by the aggregate number of Units.
"Net Assets" are defined in the Limited Partnership Agreement to mean the total
assets of the Partnership (including, but not limited to, all cash and cash
equivalents (valued at cost), accrued interest and amortization of original
issue discount, and the market value of all open futures interests positions and
other assets of the Partnership), less the total liabilities of the Partnership
(including, but not limited to, one-half of the brokerage commissions that would
be payable with respect to the closing of each of the Partnership's open futures
interests positions, management fees, incentive fees, administrative expenses,
transaction fees and costs, and extraordinary expenses), determined in
accordance with generally accepted accounting principles consistently applied
under the accrual basis of accounting. Unless generally accepted accounting
principles require otherwise, the market value of a futures interest traded on a
United States exchange shall mean the settlement price on the exchange on which
the particular futures interest shall be traded by the Partnership on the day
with respect to which Net Assets are determined, PROVIDED, HOWEVER, that if a
futures interest could not have been liquidated on such day due to the operation
of daily limits or other rules of the exchange upon which that futures interest
shall be traded or otherwise, the settlement price on the first subsequent day
on which the futures interest could have been liquidated shall be the market
value of such futures interest for such day. The market value of a futures
interest traded on a foreign exchange or market shall mean its market value as
determined by the General Partner on a basis consistently applied for each
different variety of futures interest.
The General Partner shall endeavor to pay redemptions within 10 business
days after the Redemption Date, and the Partnership's futures interests
positions will be liquidated to the extent necessary to effect redemptions.
Payment is made by credit in the amount of such redemption to the Limited
Partner's customer account with DWR or by check mailed to the Limited Partner if
such account is closed. The right to obtain redemption is contingent upon (i)
the Partnership having assets sufficient to discharge its liabilities on the
Redemption Date, and (ii) timely receipt by the General Partner of a Request for
Redemption as described above.
The terms and conditions applicable to redemptions in general, other than
those prohibiting redemptions before the sixth month-end following the Closing,
and providing that redemptions may only be made as of the end of any calendar
month, will also apply to redemptions effected on "Special Redemption Dates," as
described under "The Limited Partnership Agreement--Reports to Limited
Partners."
The liability of Limited Partners, including the possible liability of a
person who has redeemed Units, for liabilities of the Partnership which arose
before such redemption is described under "The Limited Partnership
Agreement--Nature of the Partnership."
Federal income tax aspects of redemptions are described under the caption
"Material Federal Income Tax Considerations."
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THE LIMITED PARTNERSHIP AGREEMENT
This Prospectus contains an explanation of the more significant terms and
provisions of the Amended and Restated Limited Partnership Agreement of the
Partnership (the "Limited Partnership Agreement"), a copy of which is annexed
hereto as Exhibit A and is incorporated herein by this reference.
NATURE OF THE PARTNERSHIP
The Partnership was formed on August 28, 1990 under the Partnership Act. The
fiscal year of the Partnership begins on January 1 of each year and ends on the
following December 31.
Units purchased and paid for pursuant to this offering will be fully paid
and nonassessable. Except as described under "Restrictions on Transfers and
Assignments" below, Limited Partners may only withdraw from the Partnership by
redeeming all of their Units. The Partnership may have a claim against its
Limited Partners after redemption or receipt of distributions from the
Partnership for liabilities of the Partnership that arose before the date of
such redemption or distribution, but such claim will not exceed the sum of such
Limited Partner's unredeemed capital contribution, undistributed profits, if
any, and any redemptions or distributions, together with interest thereon. The
Partnership will not make a claim against its Limited Partners with respect to
amounts distributed to them or amounts received by them upon redemption of Units
unless the Net Assets of the Partnership are insufficient to discharge the
liabilities of the Partnership that arose before the payment of such amounts.
The General Partner will be liable for all obligations of the Partnership to the
extent that assets of the Partnership, including amounts contributed by its
Limited Partners and paid out in distributions, redemptions, or otherwise to
Limited Partners, are insufficient to discharge such obligations. However,
neither the General Partner, DWR, nor any of their affiliates shall be
personally liable to a Limited Partner (or assignee) for the return or repayment
of all or any portion of the capital or profits of such Limited Partner.
MANAGEMENT OF PARTNERSHIP AFFAIRS
The Limited Partners do not participate in the management or operations of
the Partnership. Any participation by a Limited Partner in the management of the
Partnership may jeopardize the limited liability of such Limited Partner. Under
the Limited Partnership Agreement, responsibility for managing the Partnership
is vested solely in the General Partner. See "Fiduciary Responsibility." The
General Partner may delegate complete trading authority to trading advisors and
has done so (except for the ability of the General Partner to override trading
instructions that violate the Partnership's trading policies and to the extent
necessary to fund distributions or redemptions, or to pay Partnership expenses)
pursuant to the Management Agreement with the Trading Advisor. However, pursuant
to the Management Agreement, the General Partner has the right to make trading
decisions at any time at which the Trading Advisor becomes incapacitated or some
other emergency arises as a result of which the Trading Advisor is unable or
unwilling to act and the General Partner has not yet retained a successor
trading advisor. See "The Trading Advisor" and "The Management Agreement."
On behalf of the Partnership, the General Partner may engage and compensate
on behalf and from the funds of the Partnership, such persons, firms, or
corporations, including any affiliated person or entity, as the General Partner
in its sole judgment deems advisable for the conduct and operation of the
business of the Partnership; PROVIDED, HOWEVER, that, except as described in the
Limited Partnership Agreement and in this Prospectus, the General Partner will
not engage on behalf of the Partnership any person, firm, or corporation that is
an affiliate of the General Partner to perform services for the Partnership
without having made a good faith determination that: (i) the affiliate which it
proposes to engage to perform such services is qualified to do so (considering
the prior experience of the affiliate or the individuals employed thereby), (ii)
the terms and conditions of the agreement pursuant to which such affiliate is to
perform services for the Partnership are no less favorable to the Partnership
than could be obtained from equally-qualified unaffiliated third parties, or are
otherwise determined by the General Partner to be fair and reasonable to the
Partnership and the Limited Partners, and (iii) the
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maximum period covered by the agreement pursuant to which such affiliate is to
perform services for the Partnership will not exceed one year, and such
agreement will be terminable without penalty upon 60 days' prior written notice
by the Partnership.
Other responsibilities of the General Partner include, but are not limited
to, the following: determining whether the Partnership will make distributions;
administering redemptions of Units; preparing monthly and annual reports to the
Limited Partners; directing the investment of the Partnership's assets (other
than investments in futures interests); executing various documents on behalf of
the Partnership and its Limited Partners pursuant to a power of attorney; and
supervising the liquidation of the Partnership if an event causing termination
occurs. To facilitate the execution of various documents by the General Partner
on behalf of the Partnership and its Limited Partners, each of the Limited
Partners will appoint the General Partner, with power of substitution, his
attorney-in-fact by executing a Subscription Agreement and Power of Attorney.
ADDITIONAL OFFERINGS
The General Partner may, in its discretion, make additional public or
private offerings of Units, provided, that the net proceeds to the Partnership
of any such sales shall in no event be less than the Net Asset Value of a Unit
at the time of sale. The Partnership shall not pay the costs of any such
offering or any selling commissions relating thereto. No Limited Partner shall
have any preemptive, preferential or other rights with respect to the issuance
of any additional Units, except as described in the applicable prospectus or
other disclosure document with respect to such offering. There is no maximum
aggregate amount of contributions which may be received by the Partnership.
SHARING OF PROFITS AND LOSSES
Each Partner, including the General Partner, of the Partnership will have a
capital account with an initial balance equal to the amount paid for Units, or,
in the case of the General Partner, its capital contribution. The Partnership's
Net Assets will be determined monthly, and any increase or decrease from the end
of the preceding month will be added to or subtracted from the accounts of the
Partners in the ratio that each account bears to all accounts.
RESTRICTIONS ON TRANSFERS OR ASSIGNMENTS
Except as set forth below, the Limited Partnership Agreement provides that
Units may be transferred or assigned, but no transferee or assignee may become a
substituted Limited Partner without the written consent of the General Partner,
which consent shall not be unreasonably withheld, nor may a Limited Partner, an
assignee or transferee, or the estate of any beneficiary of a deceased Limited
Partner withdraw any capital or profits from the Partnership except by
redemption of Units. See "Redemptions." The General Partner, without notice to
or consent of the Limited Partners, may withdraw any portion of its interest in
the Partnership that is in excess of the interest required under the Limited
Partnership Agreement.
Any transfer or assignment of Units permitted by the Limited Partnership
Agreement will be effective as of the end of the month in which such transfer or
assignment is made; PROVIDED, HOWEVER, that the Partnership need not recognize
any transfer or assignment until it has received at least 30 days' prior written
notice thereof from the Limited Partner, which notice sets forth the address and
social security or taxpayer identification number of the transferee or assignee
and the number of Units transferred or assigned, and is signed by the Limited
Partner (a Limited Partner's signature must be guaranteed as provided for in the
Limited Partnership Agreement). No transfers or assignments of Units will be
effective or recognized by the General Partner if as a result any party to such
transfer or assignment owns fewer than the minimum number of Units required to
be purchased as described herein (subject to certain exceptions relating to
gifts, death, divorce, or transfers to family members or affiliates contained in
the Limited Partnership Agreement). No transfer or assignment will be permitted
unless the General Partner is satisfied that (i) such transfer or assignment
would not be in violation of the Partnership Act or applicable federal, state,
or foreign securities laws, and (ii) notwithstanding such transfer or
assignment, the Partnership will continue to be classified as a partnership
rather than as an association taxable as a corporation under the Internal
Revenue Code. No transfer or assignment of
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Units will be effective or recognized by the Partnership if such transfer or
assignment would result in the termination of the Partnership for federal income
tax purposes, and any attempted transfer or assignment in violation of the
Limited Partnership Agreement will be ineffective. The transfer or assignment of
Units will be subject to all applicable securities laws. The Limited Partner
will bear all costs (including any attorneys' and accountants' fees) related to
such transfer or assignment.
AMENDMENTS; MEETINGS
The Limited Partnership Agreement may be amended in accordance with, and to
the extent permissible under, the Partnership Act by an instrument signed by the
General Partner and by Limited Partners owning more than 50% of the Units then
outstanding. In addition, the General Partner may make certain amendments to the
Limited Partnership Agreement without the consent of the Limited Partners. No
amendment of the Limited Partnership Agreement may, without the consent of all
Partners affected thereby, reduce the capital account of any Partner, modify the
percentage of profits, losses, or distributions to which any Partner is
entitled, or change or alter the provisions of such Agreement relating to
amendments requiring the consent of all Partners.
Any Limited Partner or his authorized attorney or agent, upon written
request addressed to the General Partner, delivered either in person or by
certified mail, and payment of reasonable duplicating and postage costs, shall
be entitled to obtain from the General Partner by mail a list of the names and
addresses of record of all Limited Partners and the number of Units owned by
each.
Upon receipt of a written request, signed by Limited Partners owning at
least 10% of the Units then owned by Limited Partners, that a meeting of the
Partnership be called to vote upon any matter upon which all Limited Partners
may vote pursuant to the Limited Partnership Agreement, the General Partner, by
written notice to each Limited Partner of record sent by certified mail or
delivered in person within 15 days after such receipt, must call a meeting of
the Partnership. Such meeting must be held at least 30 but not more than 60 days
after the mailing of such notice, and such notice must specify the date, a
reasonable time and place, and the purpose of such meeting.
At any such meeting, upon the affirmative vote (either in person or by
proxy) of Limited Partners owning more than 50% of the Units then owned by
Limited Partners, the following actions may be taken without the consent of the
General Partner: (i) the Limited Partnership Agreement may be amended in
accordance with and to the extent permissible under the Partnership Act;
PROVIDED, HOWEVER, that without the consent of all Partners affected thereby, no
such amendment shall change or alter the provisions of this proviso, reduce the
capital account of any Partner, or modify the percentage of profits, losses, or
distributions to which any Partner shall be entitled; (ii) the Partnership may
be dissolved; (iii) the General Partner may be removed and replaced; (iv) a new
general partner or partners may be elected following the withdrawal, insolvency,
bankruptcy, dissolution, liquidation, or termination of the General Partner; (v)
any contracts with the General Partner or any of its affiliates may be
terminated without penalty on 60 days' prior written notice to the General
Partner and such affiliate(s); and (vi) the sale of all or substantially all of
the assets of the Partnership may be approved; PROVIDED, HOWEVER, that no such
action shall adversely affect the classification of the Partnership as a
partnership under United States federal income tax laws or the status of the
Limited Partners as limited partners under the Partnership Act.
INDEMNIFICATION
The Limited Partnership Agreement provides for certain indemnities of the
General Partner and its affiliates. See "Fiduciary Responsibility."
REPORTS TO LIMITED PARTNERS
The books and records of the Partnership are maintained at its principal
office. The Limited Partners have the right at all times during normal business
hours to have access to and copy such books and records of the Partnership, in
person or by their authorized attorney or agent, and, upon request, copies of
such books and records will be sent to any Limited Partner if reasonable
reproduction and distribution costs are paid by him. Within 30 days after the
close of each calendar month, the General
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Partner shall provide such financial and other information with respect to the
Partnership as the CFTC and NFA from time to time shall require in monthly
reports, together with information concerning any material change in the
brokerage commissions and fees payable by the Partnership to DWR. In addition,
if any of the following events occurs, notice of such event will be mailed to
each Limited Partner within seven business days of the occurrence of the event:
(i) a decrease in the Net Asset Value of a Unit as of the close of business on
any business day to 50% or less of the Net Asset Value for such Unit as of the
end of the immediately preceding month; (ii) any material amendment to the
Limited Partnership Agreement; (iii) any change in trading advisors or any
material change in the management agreement with a trading advisor; (iv) any
change in the commodity broker or any material change in the compensation
arrangement with a commodity broker; (v) any change in the general partner or
any material change in the compensation arrangement with a general partner; (vi)
any change in the Partnership's fiscal year; (vii) any material change in the
Partnership's trading policies as specified in the Limited Partnership
Agreement; or (viii) cessation of futures interests trading by the Partnership.
In the case of a notice given in accordance with clause (i) of the immediately
preceding sentence: (a) such notice shall also advise Limited Partners that a
"Special Redemption Date," on a date specified in such notice (but in no event
earlier than 15, nor later than 45, days after the mailing of such notice), will
take place as of which Limited Partners may redeem their Units in the same
manner as described under "Redemptions" for regular Redemption Dates (a Special
Redemption Date may take place on a regular Redemption Date); and (b) following
the close of business on the date of the 50% decrease giving rise to such
notice, the Partnership shall liquidate all existing positions as promptly as
reasonably practicable and shall suspend all futures interests trading through
the Special Redemption Date. Thereafter, the General Partner shall determine
whether to reinstitute futures interests trading or to terminate the
Partnership. Additionally, the General Partner distributes to the Limited
Partners within 90 days after the close of each fiscal year an annual report
containing audited financial statements (including a statement of income and
statement of financial condition) of the Partnership for the fiscal year then
ended, prepared in accordance with generally accepted accounting principles and
accompanied by a report of the certified public accounting firm which audited
such financial statements, and such other information as the CFTC and the NFA
may from time to time require. Such annual reports provide a detailed statement
of any transactions with the General Partner or its affiliates and of fees,
commissions and any compensation paid or accrued to the General Partner or its
affiliates for the fiscal year completed, showing the amount paid or accrued to
each recipient and the services performed. Within 75 days after the close of
each fiscal year (but in no event later than March 15 of each year), the
Partnership will report to each Limited Partner tax information necessary for
the preparation of the Limited Partner's federal income tax returns. The Net
Asset Value of Units is determined daily by the General Partner and the most
recent Net Asset Value calculations will be promptly supplied in writing to any
Limited Partner after receipt of a request in writing to such effect. In
addition to the above-described information and reports, the General Partner
will provide Limited Partners with such other information and will comply with
any such procedures in connection with redemptions as in the future are
specifically required under the Securities and Exchange Commission rules and
policies for commodity pools and similar investment vehicles.
In addition, subject to limits imposed under certain state guidelines
incorporated in the Limited Partnership Agreement, no increase in (a) any of the
management or incentive fees, or the caps on brokerage commissions, transaction
fees and costs, ordinary administrative expenses, or net excess interest or
compensating balance benefits to DWR, as described under "Description of Charges
to the Partnership," may take effect until the first business day following a
Redemption Date, PROVIDED that: (1) notice of such increase is mailed to each
Limited Partner at least five business days prior to the last date on which a
"Request for Redemption" must be received by the General Partner with respect to
the applicable Redemption Date; (ii) such notice describes the redemption and
voting rights of Limited Partners; and (iii) none of such fees or caps may be
increased until the first business day following the first Redemption Date as of
which a redemption charge is no longer payable.
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PLAN OF DISTRIBUTION
The Units are being offered through DWR pursuant to a Selling Agreement
among the Partnership, the General Partner, the Trading Advisor, and DWR, as
selling agent. DWR and the General Partner are "affiliates" of one another
pursuant to SEC rules under the 1933 Act. The Units are being offered on a "best
efforts" basis without any agreement by DWR to purchase Units. The General
Partner has registered 50,000 Units with the SEC, and the General Partner, in
its discretion, may register and sell additional Units. Also, the Limited
Partnership Agreement provides that additional public and/or private offerings
may be made at the discretion of the General Partner in the future; therefore,
there is no maximum aggregate amount of funds which may be contributed to the
Partnership.
Units will be issued at the Closing, which is currently scheduled to be held
as of October 1, 1997; provided, however, that the General Partner may at its
discretion hold the Closing as of the first business day of any month during the
Offering Period (the period commencing the date of this Prospectus and ending
October 10, 1997). Units are offered for sale at a price per Unit equal to 100%
of the Net Asset Value of a Unit as of the close of business on the last day of
the month immediately preceding the date of the Closing. The General Partner
shall have the discretion to terminate the offering of Units at any time.
Funds with respect to a subscription received during the Offering Period and
not immediately rejected by the General Partner will be promptly transferred to,
and held in escrow by, The Chase Manhattan Bank, New York, New York (the "Escrow
Agent"), as described below under "Subscription Procedure," and invested solely
in the Escrow Agent's interest-bearing money market account until the General
Partner either rejects such subscription prior to the Closing or accepts such
subscription at the Closing. At all times during the Offering Period, and prior
to the Closing, subscription funds will be in the possession of the Escrow Agent
and at no time will the General Partner handle or take possession of such funds.
Following the Closing, a credit will be advanced to each subscriber's
customer account with DWR in the amount of any interest earned on such
subscriber's funds while held in escrow. Interest earned on subscriptions
deposited into escrow and thereafter rejected by the General Partner will be
credited to the subscriber's customer account with DWR. In the event a
subscriber's customer account with DWR has been closed, any subscription
returned and/or interest earned will be paid by check. During the Offering
Period, the General Partner, DWR, the Trading Advisor, and their respective
principals, directors, officers, employees, and affiliates may subscribe for any
number of Units. Any such subscriptions will be for investment purposes only and
not for resale.
Except as described below, employees of DWR will receive from DWR (payable
solely from its own funds) a gross sales credit equal to 3% of the Net Asset
Value per Unit as of the Closing for each Unit sold by them and issued at the
Closing. Employees of DWR who are properly registered with the CFTC and are
members of the NFA also will receive, beginning the eighth month after a Unit
was issued, from DWR (payable solely from its own funds) up to 35% of the
brokerage commissions that are attributable to outstanding Units sold by them
and received by DWR as commodity broker for the Partnership. Such compensation
may only be paid to employees of DWR who are registered as associated persons
with the CFTC, are members of the NFA in such capacity, and have passed the
Series 3 or Series 31 examination or have been "grandfathered" as an associated
person qualified to do commodity brokerage, and will be paid by DWR to its
employees in consideration of certain additional services relating to the Units
which such employees have agreed to render on an ongoing basis. Such additional
services include: (a) inquiring of the General Partner from time to time, at the
request of Limited Partners, as to the Net Asset Value of the Units; (b)
inquiring of the General Partner, at the request of Limited Partners, regarding
the futures markets and the activities of the Partnership; (c) responding to
questions of Limited Partners with respect to the monthly account statements,
annual reports, financial statements, and annual tax information furnished
periodically to Limited Partners; (d) providing advice to Limited Partners as to
when and whether to redeem Units; (e) assisting Limited Partners in the
redemption of Units; and (f) providing such other services as Limited Partners
from time to time may reasonably
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request. The Selling Agreement provides that such continuing compensation may
only be paid by DWR as long as such services are provided and only to those
employees who are properly registered with the CFTC and are members of the NFA.
A Limited Partner may telephone, write, or visit such employee at the local DWR
branch office to avail himself of such services.
DWR will not pay to its employees the 3% gross sales credit described above
with respect to Units purchased by a subscriber with the proceeds of a
redemption on or after June 30, 1996 of all or a portion of such subscriber's
interest in any other commodity pool for which the General Partner serves as the
general partner and commodity pool operator. Such employees will receive the
gross sales credit percentage with respect to roundturn brokerage commissions
which are charged to the Partnership which are comparable to the gross sales
credit which was received by such employees with respect to such other
partnerships.
Redemptions of Units at or prior to the end of the twenty-fourth month
following the Closing are subject to certain redemption charges payable to DWR.
For example, if (i) all 50,000 Units are sold at the Closing, (ii) the Net Asset
Value per Unit as of December 31, 1996 remained at $2,132.79 per Unit during the
first twelve months following the Closing, (iii) all Units were subject to a
redemption charge, and (iv) all Units were redeemed during the first twelve
months following the Closing, then DWR would receive $2,879,267 in redemption
charges. These redemption charges may be deemed to be underwriting compensation
to DWR. See "Redemptions."
In connection with the sale of Units, DWR may implement a cash sales
incentive and/or promotional program for its employees who sell Units. Such a
program will provide for DWR, and not the Partnership or General Partner, to pay
its employees bonus compensation based on sales of Units. Any such program will
be approved by the NASD prior to implementation.
The aggregate of all commissions paid to employees of DWR from the initial
3% gross sales credit, the redemption charges received by DWR, and any sales
incentives will not exceed 10% of the proceeds of the sale of Units.
The Units are being sold by the Partnership when, as and if subscriptions
therefor are accepted by the General Partner, subject to the satisfaction of
certain conditions set forth in the Selling Agreement and the approval by
counsel of certain legal matters. The Partnership has agreed to indemnify the
Trading Advisor in connection with the offer and sale of Units with respect to
any misleading or untrue statement or alleged misleading or untrue statement of
a material fact or a material omission or alleged omission unrelated to the
Trading Advisor or its principals. The Partnership also has agreed to certain
indemnities of DWR in connection with the offer and sale of Units. See
"Fiduciary Responsibility."
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SUBSCRIPTION PROCEDURE
The minimum subscription for most new subscribers during the Offering Period
is $5,000, except that the minimum subscription is: (a) $2,000 in the case of an
IRA; or (b) for subscribers effecting Exchanges, the lesser of (i) $5,000
($2,000 in the case of an IRA), (ii) the proceeds from the redemption of five
units (two units in the case of an IRA) from commodity pools other than the
Spectrum Series, (iii) the proceeds from the redemption of 500 units (200 units
in the case of an IRA) from one, or any combination, of the Spectrum Series of
commodity pools, or (iv) the proceeds from the redemption of all of a
subscriber's units of limited partnership interest in any other commodity pool
for which the General Partner serves as general partner and commodity pool
operator (see "Summary of the Prospectus--Investment Requirements"). Existing
Limited Partners who desire to make an additional investment in the Partnership
may subscribe for Units at a closing with a minimum investment of $1,000.
In order to purchase Units, a subscriber must complete, execute, and deliver
an execution copy of a Subscription and Exchange Agreement and Power of Attorney
to DWR. In the Subscription and Exchange Agreement and Power of Attorney, a
subscriber (other than one effecting an Exchange) will authorize the General
Partner and DWR to transfer the subscription amount from his customer account
with DWR to the Dean Witter Portfolio Strategy Fund L.P. Escrow Account. A
subscriber (other than one effecting an Exchange) whose Subscription and
Exchange Agreement and Power of Attorney is received by DWR and whose
subscription is not immediately rejected, must have the appropriate amount in
his customer account with DWR on the first business day following the date that
his Subscription and Exchange Agreement and Power of Attorney is received by
DWR, and DWR will debit the customer account and transfer such funds into escrow
with the Escrow Agent on that date. In the event that a subscriber (other than
one effecting an Exchange) does not have a customer account with DWR or does not
have sufficient funds in his existing customer account with DWR, the subscriber
should make appropriate arrangements with his DWR account executive, if any, and
if none, should contact his local DWR branch office. Payment must not be mailed
to the General Partner, as any mailed payment will be returned to the subscriber
for proper placement with the DWR branch office where his account is maintained.
Additional investments in the Partnership for subscribers who already own Units
must be made by executing a Subscription and Exchange Agreement and Power of
Attorney authorizing the immediate transfer of funds from the customer's account
with DWR to the Escrow Agent. In the case of Exchanges, the execution of the
Subscription and Exchange Agreement and Power of Attorney will authorize the
General Partner to redeem all or a portion of such subscriber's interest in
another commodity pool for which the General Partner serves as general partner
and commodity pool operator (subject to the terms of the applicable limited
partnership agreement), and use the proceeds of such redemption (less any
applicable redemption charges) to purchase Units.
In the case of a subscription on behalf of an IRA or other employee benefit
plan, merely subscribing for Units does not create a plan. Those considering the
purchase of Units on behalf of an IRA or other employee benefit plan must first
ensure that the plan has been properly established in accordance with the Code
and the regulations thereunder and administrative rulings thereof and that the
plan has been adequately funded. If an IRA or other employee benefit plan has
been properly established and adequately funded, the trustee or custodian of the
plan who decides to or who is instructed to do so may subscribe for Units.
Payment of the subscription price must be made by having the trustee or
custodian of the plan authorize the General Partner and DWR to transfer the
subscription amount to the Dean Witter Portfolio Strategy Fund L.P. Escrow
Account from the plan's customer account with DWR. An employee benefit plan,
including an IRA, should consider the tax consequences of an investment in the
Partnership. See "Purchase by Employee Benefit Plans--ERISA Considerations."
All Units subscribed for upon DWR's transfer of funds from a customer
account following receipt of a subscriber's check will be issued subject to the
collection of the funds represented by such check. In the event that a
subscriber's check is returned unpaid, DWR will notify the General Partner, and
the Partnership will cancel the Units issued to such subscriber represented by
such check. Any losses or profits sustained by the Partnership in connection
with the Partnership's business allocable to such cancelled Units will be deemed
a decrease or increase in Net Assets and allocated among the remaining
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Partners. In the Limited Partnership Agreement, each Limited Partner agrees to
reimburse the Partnership for any expense or loss (including any trading loss)
incurred in connection with the issuance and cancellation of any Units issued to
such Limited Partner.
All subscriptions for Units are generally irrevocable by subscribers,
provided, however, that (i) a subscriber may revoke his Subscription and
Exchange Agreement and Power of Attorney, and receive a full refund of the
subscription amount and any accrued interest thereon (or revoke the redemption
of units in the other commodity pool in the case of an Exchange), within five
business days after execution of such Agreement or no later than 3:00 P.M., New
York City time, on the date of the Closing, whichever comes first, by delivering
written notice to his DWR account executive; and (ii) there may be possible
rescission rights under applicable federal and state securities laws. The
General Partner may reject any subscription, in whole or in part, in its sole
discretion. See "Plan of Distribution." A specimen form of the Subscription and
Exchange Agreement and Power of Attorney is annexed hereto as Exhibit B. A
separate execution copy of the Subscription and Exchange Agreement and Power of
Attorney accompanies this Prospectus or may be obtained, after delivery of this
Prospectus, from a local DWR branch office. Limited Partners will not receive
certificates evidencing Units, but will be sent confirmations of purchase in
DWR's customary form.
PURCHASES BY EMPLOYEE BENEFIT PLANS--
ERISA CONSIDERATIONS
The purchase of Units might or might not be a suitable investment for an
employee benefit plan. Before proceeding with such a purchase, the person with
investment discretion on behalf of an employee benefit plan must determine
whether the purchase of Units is (a) permitted under the governing instruments
of the plan and (b) appropriate for that particular plan in view of its overall
investment policy, the composition and diversification of its portfolio, and the
considerations discussed below.
As used herein, the term "employee benefit plans" refers to plans and
accounts of various types (including their related trusts) which provide for the
accumulation of a portion of an individual's earnings or compensation, as well
as investment income earned thereon, free from federal income tax until such
time as funds are distributed from the plan. Such plans include corporate
pension and profit-sharing plans (such as so-called 401(k) plans), "simplified
employee pension plans," so-called "Keogh" plans for self-employed individuals
(including partners), and, for purposes of this discussion, individual
retirement accounts ("IRAs"), described in Section 408 of the Internal Revenue
Code of 1986, as amended (the "Code").
Notwithstanding the general requirement that most investors in the
Partnership must invest a minimum of $5,000, a minimum purchase requirement of
$2,000 has been set for IRAs. See "Investment Requirements." Greater minimum
purchases and special suitability standards may be mandated by the securities
laws and regulations of certain states, and each plan investor should consult
the Subscription and Exchange Agreement and Power of Attorney to determine the
applicable investment requirements. See "Subscription Procedure."
If the assets of an investing employee benefit plan were to be treated, for
purposes of the reporting and disclosure provisions and certain other of the
fiduciary responsibility provisions of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Code, as
including an undivided interest in each of the underlying assets of the
Partnership, an investment in Units would in general be an inappropriate
investment for the plan. A U.S. Department of Labor regulation (the
"Regulation") defines "plan assets" in situations where employee benefit plans
purchase equity securities in investment entities such as the Partnership. The
Regulation provides that the assets of an entity will NOT be deemed to be "plan
assets" of an employee benefit plan which purchases an equity security of such
an entity if the equity security is a "publicly-offered security," meaning it is
(1) freely transferable, (2) held by more than 100 investors independent of the
issuer and of each other, and (3) either (a) registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act") or (b) sold to the plan as part of a public offering of
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such securities pursuant to an effective registration statement under the 1933
Act, where the security is then timely registered under Section 12(b) or Section
12(g) of the 1934 Act. The Units currently meet, and it is expected that the
Units will continue to meet, the criteria of the Regulation.
The General Partner believes, based upon the advice of its legal counsel,
that income earned by the Partnership will not constitute "unrelated business
taxable income" under Section 512 of the Code to employee benefit plans and
other tax-exempt entities which purchase Units. Although the Internal Revenue
Service has issued favorable private letter rulings to taxpayers in somewhat
similar circumstances, other taxpayers may not use or cite such rulings as
precedent. Persons with investment discretion on behalf of employee benefit
plans who are considering the purchase of Units should consult a professional
tax adviser regarding the application of the foregoing matters to their purchase
of Units.
Units may not be purchased with the assets of an employee benefit plan if
the General Partner, DWR, or the Trading Advisor or any of their respective
affiliates either: (a) has investment discretion with respect to the investment
of such plan assets; (b) has authority or responsibility to give or regularly
gives investment advice with respect to such plan assets for a fee and pursuant
to an agreement or understanding that such advice will serve as a primary basis
for investment decisions with respect to such plan assets and that such advice
will be based on the particular investment needs of the plan; or (c) is an
employer maintaining or contributing to such plan.
Subscribing for Units does not create an IRA or other employee benefit plan.
Those considering the purchase of Units on behalf of an IRA or other employee
benefit plan must first ensure that the plan has been properly established in
accordance with the Code and the regulations thereunder and administrative
rulings thereunder and that the plan has been adequately funded. Then, after all
of the considerations discussed above have been taken into account, the trustee
or custodian of a plan who decides to or who is instructed to do so may
subscribe for Units, subject to the minimum subscription requirement.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF EMPLOYEE BENEFIT PLANS IS IN NO
RESPECT A REPRESENTATION BY THE GENERAL PARTNER, DWR, THE TRADING ADVISOR OR THE
PARTNERSHIP THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH
RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY PARTICULAR PLAN OR THAT THIS
INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR ANY PARTICULAR PLAN.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The General Partner has been advised by counsel, Cadwalader, Wickersham &
Taft, that in its opinion, the following summary correctly describes the
material federal income tax consequences to United States taxpayers of
acquiring, owning, and disposing of Units. The opinions appearing in this
section are the opinions of Cadwalader, Wickersham & Taft, except as otherwise
specifically noted herein. The following summary is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), rulings thereon, regulations
promulgated thereunder and existing interpretations thereof, any of which could
be changed at any time and which changes could be retroactive. The federal
income tax summary and the state and local income tax summary which follow in
general relate only to the tax implications of an investment in the Partnership
by individuals who are citizens or residents of the United States. Except as
indicated below or under "Purchases by Employee Benefit Plans--ERISA
Considerations," the summaries do not address the tax implications of an
investment in the Partnership by corporations, partnerships, trusts, and other
non-individuals. Moreover, the summaries are not intended as a substitute for
careful tax planning, particularly since certain of the tax consequences of
owning an interest in the Partnership may not be the same for all taxpayers,
such as non-individuals or foreign persons, or in light of an investor's
personal investment circumstances. A complete discussion of all federal, state
and local tax aspects of an investment in the Partnership is beyond the scope of
the following summary, and prospective investors must consult their own tax
advisors on such matters.
PARTNERSHIP STATUS
The General Partner has been advised by its legal counsel, Cadwalader,
Wickersham & Taft, that in its opinion under current federal income tax law, the
Partnership will be classified as a partnership and not as an association
taxable as a corporation. No ruling has been requested from the Internal Revenue
Service with respect to classification of the Partnership and the General
Partner does not intend to request such a ruling.
The opinion of counsel described above is based upon the facts set forth
herein, including that (i) the General Partner will maintain a net worth
(exclusive of its interest in the Partnership and any other limited partnership)
equal to the sum of at least 10% of the total contributions to the Partnership
and any other limited partnership for which it acts as general partner (or, if
the total contributions to the Partnership or to any other limited partnership
are less than $2,500,000, of at least 15% of total contributions to the
Partnership and to any other limited partnership or $250,000, whichever is
lesser); (ii) the General Partner's interest in each item of the Partnership's
income, gain, loss, deduction, or credit will be equal to at least 1% of each
such item; (iii) the Limited Partners will not own, directly or indirectly,
individually or in the aggregate, more than 20% of the stock of the General
Partner or of any affiliate of the General Partner; and (iv) a principal
activity of the Partnership consists of buying and selling commodities not held
as inventory, or futures, options and forward contracts with respect to such
commodities, and at least 90% of the Partnership's income consists of gains from
such trading and interest income.
Certain "publicly traded partnerships" are taxed as corporations. While this
treatment does not affect the Partnership, new legislation governing the
taxation of limited partnerships may be enacted at any time, and may apply to
the Partnership retroactively. If a partnership were classified as an
association taxable as a corporation, income or loss of such partnership would
not be passed through to its partners, and such partnership would be subject to
tax on its income without deduction for any distributions to its partners, at
the rates applicable to corporations. In addition, all or a portion of any
distributions by such partnership to its partners could be taxable to the
partners as dividends or capital gains.
PARTNERSHIP TAXATION
PARTNERS, RATHER THAN PARTNERSHIP, SUBJECT TO FEDERAL INCOME TAX. The
Partnership, as an entity, will not be subject to federal income tax. Except as
provided below with respect to certain nonresident
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aliens, each Limited Partner in computing his federal income tax liability for a
taxable year will be required to take into account his distributive share of all
items of Partnership income, gain, loss, deduction, and credit for the taxable
year of the Partnership ending within or with the taxable year of such Partner,
regardless of whether such Partner has received any distributions from the
Partnership. The characterization of an item of profit or loss will usually be
determined at the Partnership level.
ORGANIZATION AND SYNDICATION EXPENSES. Neither the Partnership nor any
Partner thereof will be entitled to any deduction for syndication expenses
(I.E., those amounts paid or incurred in connection with issuing and marketing
Units).
ALLOCATION OF PARTNERSHIP PROFITS AND LOSSES. For federal income tax
purposes, a Limited Partner's distributive share of items of Partnership income,
gain, loss, deduction, and credit will be determined by the Limited Partnership
Agreement, annexed hereto as Exhibit A, unless an allocation under such
Agreement does not have "substantial economic effect" or is not in accordance
with the Partners' interests in the Partnership. The allocations provided by the
Limited Partnership Agreement are described under "The Limited Partnership
Agreements--Allocation of Profits and Losses." In general, the Limited
Partnership Agreement allocates items of ordinary income and expense pro rata
among the Partners based upon their respective capital accounts as of the end of
the month in which such items are accrued. Net realized capital gains and losses
are generally allocated among all Partners based upon their respective capital
accounts. However, net realized capital gain and loss is allocated first to
Partners who have redeemed Units in the Partnership during a taxable year to the
extent of the difference between the amount received on the redemption and the
allocation account as of the date of redemption attributable to the redeemed
Units. Net realized capital gains for each year are allocated next among all
Partners whose capital accounts are in excess of their Units' allocation
accounts to the extent of such excess in the ratio that each such Partner's
excess bears to all such Partners' excesses. Net realized capital loss for each
year is allocated next among all Partners whose Units' allocation accounts are
in excess of their capital accounts to the extent of such excess in the ratio
that each such Partner's excess bears to all such Partners' excesses.
These allocation provisions are designed to reconcile tax allocations to
economic allocations. However, no assurance can be given that the Internal
Revenue Service will not challenge such allocations, especially in light of
recently issued final regulations.
If the allocation provided by the Limited Partnership Agreement is not
recognized by the Internal Revenue Service for federal income tax purposes, the
amount of income or loss allocated to the Partners for federal income tax
purposes under the Limited Partnership Agreement may be increased or reduced or
the character of such income or loss may be modified.
CASH DISTRIBUTIONS AND REDEMPTIONS
Distributions by the Partnership and amounts received upon the partial or
complete redemption of a Limited Partner's Units will be taxable to the Limited
Partner to the extent cash distributions by the Partnership or amounts received
upon redemption by a Limited Partner exceed such Partner's adjusted tax basis in
his Units. Such excess will be taxable to him as though it were a gain from a
sale of the Units. A loss will be recognized upon a redemption of Units only if,
following the redemption of all of a Limited Partner's Units, such Partner has
any tax basis in his Units remaining. In such case, the Limited Partner will
recognize loss to the extent of such remaining basis. See "Redemptions."
Generally, if a Limited Partner is not a "dealer" with respect to his interest
in the Partnership and he has held his interest in the Partnership for more than
one year, such gain or loss would be long-term capital gain or loss.
GAIN OR LOSS ON TRADING ACTIVITY
Because the Partnership will purchase futures interests contracts for its
own account and not for the account of others, because the Partnership will not
maintain an inventory of futures interests contracts, because substantially all
of the expected return of any combination of the Partnership's commodity
contract positions will not be attributable to the time value of the
Partnership's net
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investment in such positions, and because the Partnership will be considered a
"qualified fund" for purposes of its foreign currency commodity contracts
positions, for federal income tax purposes substantially all of the profit and
loss generated by the Partnership from its trading activities will be capital
gain and loss, which in turn may be either short-term, long-term or a
combination of both. Gain or loss with respect to a "Section 1256 contract" is
generally treated as short-term capital gain or loss to the extent of 40% of
such gain or loss, and long-term capital gain or loss to the extent of 60% of
such gain or loss. For individual partners, long-term capital gains are taxed at
a maximum marginal rate of 28%, while short-term capital gains are currently
taxed at a maximum marginal rate of 39.6%. For corporate partners, long-term and
short-term capital gains are taxed at the same rate.
A "Section 1256 contract" includes a "regulated futures contract," a
"foreign currency contract," a "nonequity option," and a "dealer equity option."
A "regulated futures contract" is a futures contract which is traded on or
subject to the rules of a national securities exchange which is registered with
the SEC, a domestic board of trade designated as a contract market by the CFTC,
or any other board of trade, exchange or other market designated by the
Secretary of the Treasury ("a qualified board or exchange"), and which is
"marked-to-market" to determine the amount of margin which must be deposited or
may be withdrawn. A "foreign currency contract" is a contract which requires
delivery of, or the settlement of which depends upon the value of, a foreign
currency which is a currency in which positions are also traded through
regulated futures contracts, which is traded in the interbank market, and which
is entered into at arm's length at a price determined by reference to the price
in the interbank market. (The Secretary of the Treasury is authorized to issue
regulations excluding certain currency forward contracts from mark-to-market
treatment.) A "nonequity option" means an option which is traded on a qualified
board or exchange and the value of which is not determined directly or
indirectly by reference to any stock (or group of stocks) or stock index, unless
(i) there is in effect a designation by the CFTC of a contract market for a
contract based on such group of stocks or stock index or (ii) such option is a
cash-settled option on a stock index that the SEC has determined to be
"broad-based." A "dealer equity option" means, with respect to an options
dealer, any listed option which is an equity option, is purchased or granted by
such options dealer in the normal course of his activity of dealing in options,
and is listed on the qualified board or exchange on which such options dealer is
registered. Each Section 1256 contract held at the end of the Partnership's
taxable year will be treated as having been sold for its fair market value on
the last day of such taxable year, and gain or loss will be taken into account
for such year. The Partnership expects that a portion of its trading activities
will be conducted in Section 1256 contracts; however, the Partnership also
expects that a portion of its trading activities will be conducted in contracts
that do not presently qualify as Section 1256 contracts ("non-Section 1256
contracts").
Gain or loss with respect to foreign currency forward and futures contracts
that are not traded on U.S. exchanges or on certain foreign exchanges designated
as "qualified boards or exchanges" by the Internal Revenue Service ("foreign
currency positions") is treated as capital gain or loss only if held by an
electing "qualified fund." In general, a "qualified fund" is an electing
partnership that: (1) has at least 20 unrelated partners (no one of which owns
more than 20% of the capital or profits of the partnership); (2) has as a
principal activity the buying and selling of options, futures, or forwards with
respect to commodities; and (3) receives at least 90% of its gross income from
interest, dividends, gain from the sale or disposition of capital assets held
for the production of interest or dividends, and income and gain from futures,
forward, and option contracts with respect to commodities. All such foreign
currency positions held by a qualified fund are treated as "Section 1256
contracts" (I.E., marked-to-market at year end) and gain or loss with respect to
such foreign currency positions is treated as 100% short-term gain or loss. Gain
or loss with respect to "regulated futures contracts," "foreign currency
contracts" and "nonequity options" is generally treated as 60% long-term gain or
loss and 40% short-term gain or loss. The General Partner has made a qualified
fund election for the Partnership.
Subject to certain limitations, a Limited Partner, other than a corporation,
estate, or trust, may elect to carry back net Section 1256 contract losses to
each of the three preceding years. Net Section 1256
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contract losses carried back to prior years may only be used to offset net
Section 1256 contract gains. Generally, such losses are carried back as 40%
short-term capital losses and 60% long-term capital losses. Capital assets not
marked to the market under Section 1256, such as non-currency forward contracts,
are not subject to the 60/40 tax regime for Section 1256 contracts, and gain or
loss on sale generally will be long-term only if such property has been held for
more than one year.
During taxable years in which little or no profit is generated from trading
activities, a Limited Partner may still have interest income.
The Partnership may engage in spread and straddle trading (I.E., holding
offsetting positions whereby the risk of loss from holding either or both
position(s) is substantially diminished). Realized losses with respect to any
position in a spread or straddle are taken into account for federal income tax
purposes only to the extent that the losses exceed unrecognized gain (at the end
of the taxable year) from offsetting positions, successor positions, or
offsetting positions to the successor positions. Thus, spreads and straddles may
not be used to defer gain from one taxable year to the next. For purposes of
applying the above rules restricting the deductibility of losses with respect to
offsetting positions, if a Partner takes into account gain or loss with respect
to a position held by the Partnership, the Partner will be treated as holding
the Partnership's position, except to the extent otherwise provided in
regulations. Accordingly, positions held by the Partnership may limit the
deductibility of realized losses sustained by a Limited Partner with respect to
positions held for his own account, and positions held by a Limited Partner for
his own account may limit his ability to deduct realized losses sustained by the
Partnership. Reporting requirements generally require taxpayers to disclose all
unrecognized gains with respect to positions held at the end of the taxable
year. The above principle, whereby a Limited Partner may be treated as holding
Partnership positions, may also apply to require a Limited Partner to capitalize
(rather than deduct) interest and carrying charges allocable to property held by
him. A portion of the gain on a "conversion transaction," including spread and
straddle trading, may be characterized as ordinary income where substantially
all of the expected return is attributable to the time value of the net
investment in the transaction.
Pursuant to current Proposed and Temporary Treasury Regulations, the holding
period of any position included in a straddle begins anew when the straddle is
terminated unless the position was held for more than the long-term capital gain
and loss holding period before the straddle was established. Further, the loss
on any position included in a straddle will be treated as a long-term capital
loss if, at the time the loss position was acquired, the taxpayer held
offsetting positions with respect to such loss position that would give rise
only to long-term capital loss if such offsetting positions were disposed of on
the day the loss position was acquired.
Where the positions of a straddle are comprised of both Section 1256 and
non-Section 1256 contracts, the Partnership will be subject to the mixed
straddle rules of the Code and the regulations promulgated thereunder. The
appropriate tax treatment of any gains and losses from trading in mixed
straddles will depend on which of the following four alternatives the
Partnership elects to pursue. The Partnership may elect to treat Section 1256
positions as non-Section 1256 positions, and the mixed straddle would be subject
to the rules governing non-Section 1256 straddles. Alternatively, the
Partnership may identify the positions of a particular straddle as an
"identified mixed straddle" under Section 1092(b)(2) of the Code and, thereby,
net the capital gain or loss attributable to the offsetting positions. The net
capital gain or loss is treated as 60% long-term and 40% short-term capital gain
or loss if attributable to the Section 1256 positions, or all short-term capital
gain or loss if attributable to the non-Section 1256 positions. Alternatively,
the Partnership may place the positions in a "mixed straddle" account which is
marked-to-market daily. Under a special account cap, not more than 50% of net
capital gain may be long-term capital gain, and not more than 40% of net capital
loss may be short-term capital loss. If the Partnership does not make any of the
aforementioned three elections, any net loss attributable to either the Section
1256 or the non-Section 1256 positions will be treated as 60% long-term and 40%
short-term capital loss, while any net gain will be treated as 60% long-term and
40% short-term capital gain, or all short-term capital gain, depending upon
whether the net gain was attributable to Section 1256 positions or non-Section
1256 positions.
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TAXATION OF LIMITED PARTNERS
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES. The amount of
Partnership loss, including capital loss, which a Limited Partner will be
entitled to take into account for federal income tax purposes is limited to the
lesser of the tax basis of his Units or (in the case of certain Limited
Partners, including individuals and closely-held C corporations) the amounts for
which he is "at risk" with respect to such interest as of the end of the
Partnership's taxable year in which such loss occurred.
Generally, a Limited Partner's initial tax basis will be the amount paid for
each Unit of the Partnership (100% of the Net Asset Value of a Unit as of the
close of business of the last day of the month immediately preceding the
applicable closing for Units sold at such closing). A Limited Partner's adjusted
tax basis will be his initial tax basis reduced by the Limited Partner's share
of Partnership distributions, losses and expenses and increased by his share of
Partnership income, including gains. The amount for which a Limited Partner is
"at risk" with respect to his interest in the Partnership will generally be
equal to his tax basis for such interest, less: (i) any amounts borrowed in
connection with his acquisition of such interest for which he is not personally
liable and for which he has pledged no property other than his interest; (ii)
any amounts borrowed from persons who have a proprietary interest in the
Partnership; and (iii) any amounts borrowed for which the Limited Partner is
protected against loss through guarantees or similar arrangements.
Because of the limitations imposed upon the deductibility of capital losses
referred to below, a Limited Partner's share of the Partnership's net capital
losses, if any, will not materially reduce his federal income tax on his
ordinary income. In addition, certain expenses of the Partnership might be
deductible by a Partner only as so-called itemized deductions and, therefore,
will not reduce the federal taxable income of a Partner who does not itemize his
deductions. Furthermore, an individual who is subject to the alternative minimum
tax for a taxable year will not realize any tax benefit from such itemized
deductions.
LIMITATIONS ON DEDUCTIBILITY OF PASSIVE LOSSES. In general, losses from a
passive activity ("passive losses") are disallowed to the extent such losses
exceed income from all passive activities ("passive income"). A passive activity
is defined as a trade or business in which the taxpayer does not materially
participate unless otherwise provided in Treasury Regulations.
Proposed and Temporary Treasury Regulations provide that the trading of
personal property, such as commodities, will not be treated as a passive
activity. Accordingly, a Limited Partner's distributive share of items of
income, gain, deduction, or loss from the Partnership will not be treated as
passive income or loss and Partnership gains allocable to Limited Partners will
not be available to offset passive losses from sources outside the Partnership.
Partnership gains allocable to Limited Partners will, however, be available to
offset losses with respect to "portfolio" investments, such as stocks and bonds.
Moreover, any Partnership losses allocable to Limited Partners will be available
to offset other income, regardless of source. Final Treasury Regulations may
modify the Proposed and Temporary Regulations, and such regulations may be
retroactive in effect.
LIMITED DEDUCTION OF CERTAIN EXPENSES. Certain miscellaneous itemized
deductions, such as expenses incurred to maintain property held for investment,
are deductible only to the extent that they exceed 2% of the adjusted gross
income of an individual, trust, or estate. The amount of certain itemized
deductions allowable to individuals is further reduced by an amount equal to the
lesser of (i) 3% of the individual's adjusted gross income in excess of a
certain threshold amount (for tax years beginning in 1995, this amount is
$114,700 ($57,350 in the case of married individuals filing a separate return))
and (ii) 80% of such itemized deductions. Based upon the contemplated activities
of the Partnership, the General Partner has been advised by its legal counsel
that, in such counsel's opinion, expenses incurred by the Partnership in its
futures interests trading business should not be subject to the 2% "floor" or
the 3% phaseout, except to the extent that the Internal Revenue Service
promulgates regulations that so provide.
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TAX ON CAPITAL GAINS AND LOSSES. For individuals, trusts and estates, "net
capital gains" are currently taxed at a maximum marginal tax rate of 28%, while
other income is taxed at a maximum marginal tax rate of 39.6%. Corporate
taxpayers are currently subject to a maximum marginal tax rate of 35% on all
income.
The excess of capital losses over capital gains is deductible by an
individual against ordinary income on a one-for-one basis, subject to an annual
limitation of $3,000 ($1,500 in the case of married individuals filing a
separate return). Excess capital losses may be carried forward.
Net losses from Section 1256 contracts are treated as 60% long-term capital
loss and 40% short-term capital loss. Such losses may, at the individual
taxpayer's election, be carried back to each of the preceding three years and
applied against gains from Section 1256 contracts.
ALTERNATIVE MINIMUM TAX. An alternative minimum tax may be imposed on
Limited Partners, depending on their particular circumstances. This tax, with
respect to taxpayers other than corporations, will be assessed to the extent
that 26% of the first $175,000 ($87,500 for married individuals filing a
separate return) of "alternative minimum taxable income" in excess of the
exemption amount ($45,000 in the case of married taxpayers filing joint returns
or a surviving spouse; $33,750 in the case of an unmarried taxpayer who is not a
surviving spouse; or $22,500 in the case of a married individual filing a
separate return or an estate or trust) plus 28% of the balance of such excess
exceeds the taxpayer's regular federal income tax liability (subject to special
modification) for the year. The alternative minimum tax exemption is phased-out
for individual taxpayers with alternative minimum taxable income in excess of
$112,500 ($150,000 for married taxpayers filing a joint return and surviving
spouses; $75,000 for married individuals filing separate returns, estates, and
trusts). "Alternative minimum taxable income" is equal to adjusted gross income
computed without deducting normal net operating losses, less specified net
operating losses, credits, trust distributions and itemized deductions, and
increased by certain tax preferences. Long-term capital gains are taxed at a
maximum 28% rate. However, the limitation on the long-term capital gains rate
does not give rise to an adjustment or increase in "alternative minimum taxable
income." Therefore, transactions in Section 1256 contracts should not directly
affect the application of the alternative minimum tax. The extent, if any, to
which the alternative minimum tax will be imposed will depend on the overall tax
situation of each Limited Partner at the end of each such taxable year.
LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT
INDEBTEDNESS. Interest paid or accrued on indebtedness properly allocable to
property held for investment is investment interest. Such interest is generally
deductible by non-corporate taxpayers only to the extent it does not exceed net
investment income. A Limited Partner's distributive share of net Partnership
income and any gain from the disposition of Units will be treated as investment
income, except that a Limited Partner's net capital gain from the disposition of
Units is not investment income unless the Limited Partner waives the benefit of
the 28% tax rate on such gain. It is not clear whether a Limited Partner's
distributive share of Partnership net capital gain constitutes investment income
where such gain is taxed at the maximum 28% rate. Interest expense incurred by a
Limited Partner to acquire his Units generally will be investment interest. Any
investment interest disallowed as a deduction in a taxable year solely by reason
of the limitation above is treated as investment interest paid or accrued in the
succeeding taxable year.
TAXATION OF FOREIGN LIMITED PARTNERS. A Limited Partner who is a
non-resident alien individual, foreign corporation, foreign partnership, foreign
trust, or foreign estate (a "Foreign Limited Partner") generally is not subject
to taxation by the United States on United States source capital gains from
commodity trading for a taxable year, provided that such Foreign Limited Partner
does not have certain present or former connections with the United States
(e.g., if the Foreign Limited Partner (in the case of an individual) does not
spend more than 182 days in the United States during his taxable year (or, in
certain limited circumstances, a prior taxable year), or if the Foreign Limited
Partner is not engaged in a
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trade or business within the United States during the taxable year or, in
certain limited circumstances, a prior taxable year to which income, gain, or
loss from the Partnership is treated as effectively connected).
Pursuant to a "safe harbor" provision of the Code, a Foreign Limited Partner
would not be engaged in a trade or business within the United States solely
because such Foreign Limited Partner is a partner of a partnership which effects
transactions in the United States in commodities for the partnership's own
account, as long as the partnership is not a dealer in commodities and as long
as the partnership only trades commodities which are of a kind customarily dealt
in on an organized commodity exchange in transactions of a kind customarily
consummated on such an exchange. The Partnership has been advised by its counsel
that, in such counsel's opinion, the Partnership's commodities transactions
should satisfy the safe harbor, and that owning an interest in the Partnership
should not, in such counsel's opinion, by itself, cause a Foreign Limited
Partner to be engaged in a trade or business within the United States. In the
event that future Partnership transactions are not covered by the safe harbor,
there is a risk that all of a Foreign Limited Partner's distributive share of
income of the Partnership would be treated as effectively connected with the
conduct of a trade or business in the United States and taxed at regular rates
(discussed previously) and, in the case of a Foreign Limited Partner which is a
foreign corporation, an additional 30% branch profits tax (unless reduced or
eliminated by treaty).
If a Foreign Limited Partner is a dealer in commodities, or otherwise is
engaged in a U.S. trade or business, and if income, gain, or loss from the
Partnership is treated as effectively connected with such trade or business, the
Partnership may be required to withhold tax on income allocable to such Foreign
Limited Partner and remit to the Internal Revenue Service an amount equal to
39.6% (35% for corporations) of the amount of such effectively connected taxable
income allocable to the Foreign Limited Partner. Any amounts remitted will
constitute a refundable credit against the Foreign Limited Partner's United
States federal income tax liability, which can be claimed on the Foreign Limited
Partner's United States federal income tax return.
A foreign person generally is subject to a 30% withholding tax (unless
reduced or exempted by treaty) on certain types of United States source income
that are not effectively connected with the conduct of a United States trade or
business, such as certain interest-bearing obligations, the income attributable
to which is not exempt from tax. This tax must be withheld by the person having
control over the payment of such income. Accordingly, the Partnership may be
required to withhold tax on items of such income which are included in the
distributive share (whether or not actually distributed) of a Foreign Limited
Partner. However, 30% withholding is not required in respect of certain
interest-bearing obligations, such as "portfolio interest" obligations issued
after July 18, 1984 (if procedural requirements are complied with). If the
Partnership is required to withhold tax on such income of a Foreign Limited
Partner, the General Partner may pay such tax out of its own funds and then be
reimbursed out of the proceeds of any distribution to or redemption of Units by
the Foreign Limited Partner.
The estate of a deceased Foreign Limited Partner may be liable for U.S.
estate tax and may be required to obtain an estate tax release from the Internal
Revenue Service in order to transfer the Units of such Foreign Limited Partner.
FOREIGN PERSONS SHOULD CONSULT THEIR OWN TAX ADVISERS BEFORE DECIDING
WHETHER TO INVEST IN THE PARTNERSHIP.
TAX ELECTIONS. The Code provides for optional adjustments to the basis of
Partnership property upon distributions of Partnership property to a Partner
(Section 734) and transfers of Units, including transfers by reason of death
(Section 743), provided that a Partnership election has been made pursuant to
Section 754. As a result of the complexities and added expense of the tax
accounting required to implement such an election, the General Partner does not
presently intend to make such an election. Therefore, any benefits which might
be available to the Partners by reason of such an election will be foreclosed.
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TAX RETURNS AND INFORMATION. The Partnership will file its information
return using the accrual method of accounting. Within 90 days after the close of
the Partnership's taxable year, the Partnership will furnish each Limited
Partner (and any assignee of the Units of any Limited Partner) copies of (i) the
Partnership's Schedule K-1 indicating the Limited Partner's distributive share
of tax items and (ii) such additional information as is reasonably necessary to
permit the Limited Partners to prepare their own federal and state tax returns.
PARTNERSHIP'S TAX ACCOUNTING. The Partnership has the calendar year as its
taxable year.
UNRELATED BUSINESS TAXABLE INCOME OF EMPLOYEE BENEFIT PLAN LIMITED PARTNERS
AND OTHER TAX-EXEMPT INVESTORS. Income allocated to a Limited Partner which is
an employee benefit plan or other tax-exempt entity should not be subject to tax
under Section 511 of the Code. Such investors should see "Purchases by Employee
Benefit Plans--ERISA Considerations."
TAX AUDITS
All Partners are required under the Code to report all the Partnership items
on their own returns consistently with the treatment by the Partnership, unless
they file a statement with the Internal Revenue Service disclosing the
inconsistencies. Adjustments in tax liability with respect to Partnership items
will be made at the Partnership level. The General Partner will represent the
Partnership during any audit and in any dispute with the Internal Revenue
Service. Each Limited Partner in the Partnership will be informed by the General
Partner of the commencement of an audit of the Partnership. In general, the
General Partner may enter into a settlement agreement with the Internal Revenue
Service on behalf of, and binding upon, the Limited Partners. However, prior to
settlement, a Limited Partner may file a statement with the Internal Revenue
Service stating that the General Partner does not have the authority to settle
on behalf of such Limited Partner.
The period for assessing a deficiency against a partner in a partnership,
such as the Partnership, with respect to a partnership item is the later of
three years after the partnership files its return or, if the name and address
of the partner does not appear on the partnership return, one year after the
Internal Revenue Service is furnished with the name and address of the partner.
In addition, the General Partner may consent on behalf of the Partnership to the
extension of the period for assessing a deficiency with respect to a Partnership
item. As a result, a Limited Partner's federal income tax return may be subject
to examination and adjustment by the Internal Revenue Service for a Partnership
item more than three years after it has been filed.
-------------------
All of the foregoing statements are based upon the existing provisions of
the Code and the regulations promulgated thereunder and the existing
administrative and judicial interpretations thereof. It is emphasized that no
assurance can be given that legislative, administrative or judicial changes will
not occur which will modify such statements.
The foregoing statements are not intended as a substitute for careful tax
planning, particularly since certain of the federal income tax consequences of
purchasing an interest in the Partnership may not be the same for all taxpayers.
There can be no assurance that the Partnership's tax return will not be audited
by the Internal Revenue Service or that no adjustments to the return will be
made as a result of such audits. If an audit results in adjustment, Limited
Partners may be required to file amended returns and their returns may be
audited. Accordingly, prospective purchasers of an interest in the Partnership
are urged to consult their tax advisers with specific reference to their own tax
situation under federal law and the provisions of applicable state, local and
foreign laws before subscribing for Units.
94
<PAGE>
STATE AND LOCAL INCOME TAX ASPECTS
In addition to the federal income tax consequences for individuals described
under "Material Federal Income Tax Considerations" above, the Partnership and
its Limited Partners may be subject to various state and local taxes. A Limited
Partner's distributive share of the realized profits of the Partnership may be
required to be included in determining his reportable income for state or local
tax purposes. Furthermore, state and local tax laws may not reflect recent
changes made to the federal income tax law and hence may be inconsistent with
the federal income treatment of gains and losses arising from the Partnership's
transactions in Section 1256 contracts. Accordingly, prospective Limited
Partners should consult with their own tax advisers concerning the applicability
of state and local taxes to an investment in the Partnership.
The General Partner has been advised by its legal counsel, Cadwalader,
Wickersham & Taft, that in such counsel's opinion, the Partnership should not be
liable for New York City unincorporated business tax. Limited Partners who are
nonresidents of New York State will not be liable for New York State personal
income tax on such Partners' income from the Partnership. No ruling from the New
York State Department of Taxation and Finance will be requested regarding such
matters. Likewise, Limited Partners who are nonresidents of New York City will
not be liable for New York City earnings tax on such Partners' income from the
Partnership. New York City residents may be subject to New York City personal
income tax on such Partners' income from the Partnership.
POTENTIAL ADVANTAGES
An investment in the Partnership is speculative and involves a high degree
of risk. The General Partner and DWR believe that managed futures investments
(such as the Partnership) provide investors with the potential for long-term
capital appreciation (with commensurate risk) and are appropriate only for the
aggressive growth portion of an investor's comprehensive financial plan. See
"Risk Factors." However, such an investment offers the following potential
advantages.
INVESTMENT DIVERSIFICATION. An investor who is not prepared to make a
significant investment or spend substantial time trading various futures
interests nevertheless may participate in these markets through an investment in
the Partnership, thereby obtaining diversification from investments in stocks,
bonds, and real estate. The General Partner believes, on the basis of the past
experience of the Partnership, that the profit potential of the Partnership does
not depend upon favorable general economic conditions, and that the Partnership
is as likely to be profitable during periods of declining stock, bond, and real
estate markets as at any other time; conversely, the Partnership may be
unprofitable (as well as profitable) during periods of generally favorable
economic conditions.
95
<PAGE>
The table below is an empirical example of how different assets can react to
business cycles. In each case, the asset class is represented by a recognized
industry index for that asset.
ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME
<TABLE>
<CAPTION>
BONDS (SALOMON MANAGED FUTURES
STOCKS (S&P CORP. BOND INT'L STOCKS (BARCLAY CTA
500) INDEX) (EAFE INDEX) INDEX)
----------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
1981 -5.0% -1.2% -1.0% 23.9%
1982 21.6% 42.5% -0.9% 16.7%
1983 22.5% 6.3% 24.6% 23.8%
1984 6.2% 16.8% 7.9% 8.7%
1985 31.7% 30.1% 56.7% 25.5%
1986 18.6% 19.9% 70.0% 3.8%
1987 5.2% -0.2% 24.9% 57.3%
1988 16.5% 10.7% 28.6% 21.8%
1989 31.6% 16.2% 10.8% 1.8%
1990 -3.1% 6.8% -23.2% 21.0%
1991 30.4% 19.9% 12.5% 3.7%
1992 7.6% 9.4% -11.8% -0.9%
1993 10.1% 13.2% 32.9% 10.4%
1994 1.3% -5.8% 8.1% -0.7%
1995 37.5% 27.2% 11.5% 13.7%
1996 23.0% 1.3% 6.4% 9.2%
</TABLE>
Performance data for stocks, bonds and international stocks is provided by
Thomson Investment Software, Rockville, MD. Managed futures performance data is
represented by the Barclay CTA Index, Fairfield, IA.
THE PERFORMANCE INFORMATION OF THE ASSET CLASSES ABOVE DOES NOT REFLECT THE
EFFECT OF FEES IDENTICAL TO THOSE TO BE PAID BY THE PARTNERSHIP, INCLUDING
MANAGEMENT AND INCENTIVE FEES AND BROKERAGE COMMISSIONS. NOTE THAT WHILE THE
BARCLAY CTA INDEX REFLECTS RESULTS NET OF ACTUAL FEES AND EXPENSES, IT INCLUDES
ACCOUNTS WITH TRADING ADVISORS AND FEE STRUCTURES THAT DIFFER FROM PUBLIC
MANAGED FUTURES FUNDS (SUCH AS THE PARTNERSHIP). ACCORDINGLY, WHILE THE BARCLAY
CTA INDEX IS BELIEVED TO BE REPRESENTATIVE OF MANAGED FUTURES IN GENERAL, THE
PERFORMANCE OF PUBLIC MANAGED FUTURES FUNDS AS A SUBCLASS MAY DIFFER. SEE
"PERFORMANCE RECORD OF THE PARTNERSHIP" AND "THE TRADING ADVISOR" FOR
PERFORMANCE INFORMATION ABOUT THE PARTNERSHIP AND THE TRADING ADVISOR. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-------------------
Over time, managed futures investments have demonstrated that they have the
potential to perform independently of traditional markets such as stocks and
bonds. The factors that influence the stock and bond markets can affect the
futures markets in different ways and to varying degrees.
96
<PAGE>
MANAGED FUTURES vs. STOCKS
12-Month Holding Period Performance
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 INDEX BARCLAY CTA INDEX
<S> <C> <C>
12/81 -5.125517% 23.897480%
1/82 -2.253534% 19.683202%
2/82 -9.173638% 22.378983%
3/82 -13.103625% 36.806500%
4/82 -7.251420% 34.157410%
5/82 -10.583704% 33.639228%
6/82 -11.393308% 22.577214%
7/82 -13.161905% 14.524697%
8/82 3.339177% 15.913886%
9/82 9.967662% 30.142871%
10/82 16.332015% 29.024509%
11/82 16.220264% 14.974608%
12/82 21.589784% 16.678894%
1/83 27.749348% 35.844207%
2/83 38.293737% 19.893554%
3/83 44.131264% 13.973711%
4/83 48.678425% 13.881853%
5/83 52.526212% 21.234055%
6/83 60.888052% 3.846808%
7/83 58.922011% 17.833218%
8/83 43.894592% 23.210841%
9/83 44.178969% 12.848470%
10/83 27.756789% 18.577646%
11/83 25.422773% 19.500430%
12/83 22.468752% 23.749815%
1/84 17.390491% 6.217633%
2/84 10.734921% 15.665689%
3/84 8.599243% 15.586342%
4/84 1.553879% 13.593474%
5/84 -3.262501% 7.697618%
6/84 -4.845309% 6.155718%
7/84 -3.079551% 24.901797%
8/84 6.087309% 5.363702%
9/84 4.622593% 9.349413%
10/84 6.316885% 2.874141%
11/84 2.984721% 4.151614%
12/84 6.193290% 8.741174%
1/85 15.167370% 9.779353%
2/85 20.776559% 16.019839%
3/85 18.876436% 12.572353%
4/85 17.698275% 13.207573%
5/85 31.911838% 10.184935%
6/85 31.137404% 16.268989%
7/85 32.597438% 9.206413%
8/85 18.394831% 16.779640%
9/85 14.724591% 3.673097%
10/85 19.523826% 15.371491%
11/85 29.192084% 24.492285%
12/85 31.962284% 25.501400%
1/86 23.148477% 24.644901%
2/86 30.693147% 35.922128%
3/86 37.874088% 45.098999%
4/86 36.493966% 38.807726%
5/86 35.848910% 31.602982%
6/86 35.982621% 36.263084%
7/86 28.496090% 23.457034%
8/86 39.117742% 31.902510%
9/86 31.652188% 34.946084%
10/86 33.162537% 21.009713%
11/86 27.557007% 13.045658%
12/86 18.671832% 3.820213%
1/87 33.889195% 12.625618%
2/87 29.650617% -0.724869%
3/87 26.335686% -2.839705%
4/87 26.591167% 26.483494%
5/87 21.301508% 29.261181%
6/87 25.237545% 26.926240%
7/87 39.432904% 28.745621%
8/87 34.629348% 20.416534%
9/87 43.585062% 28.423902%
10/87 6.535231% 34.777930%
11/87 -4.492830% 49.661383%
12/87 5.400733% 57.267201%
1/88 -3.049898% 39.634943%
2/88 -2.583792% 39.759854%
3/88 -8.169366% 30.566016%
4/88 -6.223410% 2.735035%
5/88 -6.502231% 13.993096%
6/88 -6.858412% 50.090122%
7/88 -11.555371% 31.516954%
8/88 -17.781463% 34.500200%
9/88 -12.317041% 34.607032%
10/88 14.937279% 36.002338%
11/88 23.200744% 28.513444%
12/88 16.559811% 21.756704%
1/89 19.909231% 25.926113%
2/89 11.762288% 20.711498%
3/89 17.984106% 29.561424%
4/89 22.764094% 31.517324%
5/89 26.669115% 35.102513%
6/89 20.493089% 7.403316%
7/89 31.721401% 14.998908%
8/89 39.099985% 7.712823%
9/89 32.831818% 3.609478%
10/89 26.248318% -3.913121%
11/89 30.738857% -4.212748%
12/89 31.509420% 1.799976%
1/90 14.366666% 1.860166%
2/90 18.711190% 6.355393%
3/90 19.058976% 5.708949%
4/90 10.352859% 13.341677%
5/90 16.412698% -4.289475%
6/90 16.295701% -4.336726%
7/90 6.382318% 2.828771%
8/90 -5.008323% 16.499963%
9/90 -9.204742% 23.492844%
10/90 -7.440826% 32.872048%
11/90 -3.444159% 29.274243%
12/90 -3.066988% 21.024004%
1/91 8.452888% 13.348264%
2/91 14.781988% 11.526414%
3/91 14.558460% 12.890454%
4/91 17.727597% 5.946837%
5/91 11.921853% 10.296363%
6/91 7.530553% 11.854437%
7/91 12.917855% 2.344374%
8/91 26.954949% -5.914929%
9/91 31.088984% -5.969853%
10/91 33.455688% -7.884852%
11/91 20.398875% -7.209235%
12/91 30.471155% 3.726179%
1/92 22.605430% 4.129740%
2/92 15.959527% 2.260718%
3/92 10.981753% -3.711355%
4/92 13.969298% -2.641590%
5/92 9.809034% -1.770817%
6/92 13.258533% -0.067642%
7/92 12.610106% 7.863662%
8/92 7.761922% 12.504615%
9/92 10.941063% 7.762159%
10/92 9.848048% 8.958430%
11/92 18.324330% 9.969115%
12/92 7.596541% -0.914859%
1/93 10.554899% 1.908139%
2/93 10.664142% 10.362988%
3/93 15.176442% 11.835393%
4/93 9.249887% 16.344886%
5/93 11.646196% 17.927091%
6/93 13.686431% 14.020276%
7/93 8.776747% 13.364422%
8/93 15.338944% 7.369295%
9/93 13.059518% 8.198654%
10/93 14.971969% 7.367104%
11/93 10.074808% 6.263618%
12/93 9.966146% 10.368820%
1/94 12.799762% 8.694010%
2/94 8.234323% 1.572785%
3/94 1.449801% 4.155490%
4/94 5.291810% -0.860525%
5/94 4.264573% 1.267692%
6/94 1.457850% 2.792023%
7/94 5.223086% -1.915933%
8/94 5.527492% -1.915933%
9/94 3.719058% 0.586868%
10/94 3.820544% 1.254614%
11/94 1.091187% 2.801489%
12/94 1.390864% -0.652849%
1/95 0.607167% 0.898488%
2/95 7.438517% 5.853324%
3/95 15.633932% 10.407829%
4/95 17.458531% 13.712308%
5/95 20.235875% 11.200856%
6/95 26.025921% 7.089137%
7/95 26.025921% 6.883530%
8/95 21.421129% 12.884627%
9/95 29.764941% 10.864073%
10/95 26.466906% 10.742220%
11/95 36.972985% 10.045180%
12/95 37.512779% 13.639259%
1/96 38.58% 18.78%
2/96 34.71% 9.39%
3/96 32.10% 3.40%
4/96 30.17% 8.28%
5/96 28.42% 5.60%
6/96 26.03% 6.60%
7/96 16.53% 6.15%
8/96 18.74% 2.89%
9/96 20.33% 5.32%
10/96 24.07% 11.12%
11/96 27.88% 13.77%
12/96 22.98% 9.16%
</TABLE>
Data: December 1981 - December 1996
Stocks: S&P 500 Index (Thomson Investment Software, Rockville, MD)
Managed Futures: Barclay CTA Index (Barclay Trading Group, Fairfield, IA)
97
<PAGE>
NOTES TO "MANAGED FUTURES VS. STOCKS" CHART:
Managed futures investments can serve to diversify a portfolio and smooth
overall portfolio volatility. Modern Portfolio Theory ("MPT") is the academic
affirmation of the value of diversification. MPT was developed in the 1950s by
Nobel Laureates William Sharpe and Harold Markowitz. These two pioneers
developed a framework for efficiently diversifying assets within a portfolio.
They suggested that investing in any asset class with positive returns and low
correlation to other assets improves the overall risk/reward characteristics of
the entire portfolio.
In 1983, Dr. John H. Lintner of Harvard University focused on the concepts
of MPT in a ground-breaking study about portfolio diversification. Specifically,
MPT was utilized to evaluate the addition of a managed futures component to a
diversified portfolio comprised of 60% stocks and 40% bonds. The results of
Lintner's work demonstrated that by including managed futures--a non-correlated
asset class--investors could reduce portfolio volatility at every level of
return.
In 1996, Dr. Thomas Schneeweis of the University of Massachusetts at Amherst
completed a study titled "The Benefits of Managed Futures" which furthers
Lintner's original premise that a managed futures component can benefit an
overall portfolio.
The chart above illustrates the performance of managed futures against that
of stocks from 1981 through 1996, using a recognized market index of each asset.
Stocks are represented by the S&P 500 Index, Thomson Investment Software,
Rockville, MD; managed futures are represented by the Barclay CTA Index, Barclay
Trading Group, Fairfield, IA. Each bar represents the asset class performance
derived from successive 12-month hypothetical holding periods or windows. (A
12-month holding period is defined as a period of 12 consecutive months, i.e.,
from January 1989 to December 1989; the next would be from February 1989 to
January 1990, etc.)
By overlaying returns, investors can see the potential benefits of a
diversified portfolio that includes both traditional asset classes as well as
assets that are non-traditional and non-correlated. There are many times when
both the managed futures and stock indices showed positive performance.
Obviously, though, there is no investment that only appreciates. There are 19
periods when managed futures showed negative returns, while stocks experienced
26 periods of negative returns during the studied time frame. While not a
guarantee of future results, this chart provides clear indication of the
non-correlated aspect of managed futures. This non-correlation enables investors
with managed futures to potentially lower the overall volatility of their
portfolios.
THE PERFORMANCE INFORMATION OF THE ASSET CLASSES ABOVE DOES NOT REFLECT THE
EFFECT OF FEES IDENTICAL TO THOSE TO BE PAID BY THE PARTNERSHIP, INCLUDING
MANAGEMENT AND INCENTIVE FEES AND BROKERAGE COMMISSIONS. NOTE THAT WHILE THE
BARCLAY CTA INDEX REFLECTS RESULTS NET OF ACTUAL FEES AND EXPENSES, IT INCLUDES
ACCOUNTS WITH TRADING ADVISORS AND FEE STRUCTURES THAT DIFFER FROM PUBLIC
MANAGED FUTURES FUNDS (SUCH AS THE PARTNERSHIP). ACCORDINGLY, WHILE THE BARCLAY
CTA INDEX IS BELIEVED TO BE REPRESENTATIVE OF MANAGED FUTURES IN GENERAL, THE
PERFORMANCE OF PUBLIC MANAGED FUTURES FUNDS AS A SUBCLASS MAY DIFFER. SEE
"PERFORMANCE RECORD OF THE PARTNERSHIP" AND "THE TRADING ADVISOR" FOR
PERFORMANCE INFORMATION ABOUT THE PARTNERSHIP AND THE TRADING ADVISOR. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-------------------
The Partnership's combined benefits of aggressive growth potential (with
commensurate risk) and diversification can potentially reduce overall portfolio
volatility while maximizing profits. By combining asset classes, investors
strive to create a portfolio mix that provides the potential to offer the
greatest possible return within acceptable levels of volatility. While past
performance is no guarantee of future results, a managed futures investment such
as the Partnership may profit (with commensurate risk) in sustained futures
interests market moves, regardless of their direction, a potential enhancement
to an
98
<PAGE>
investor's overall portfolio. The Partnership experienced an overall return from
February 1, 1991 to December 31, 1996 of 113.28%, for a compounded annual rate
of return of 13.66%. See "Performance Record of the Partnership."
The Trading Advisor's speculative trading techniques will be the primary
factors in the Partnership's future success or failure. Investors should note
that there are always two parties to a futures interests contract, consequently,
for any gain achieved by one party on a futures interests contract, a
corresponding loss is suffered by the other. Therefore, due to the nature of
futures interests trading, only 50% of futures interests held by all market
participants can experience gain at any one time, without reference to brokerage
commissions and other costs of trading, which may reduce or eliminate any gain
that would otherwise be achieved.
FUTURES INTERESTS TRADED. The Partnership normally trades a diverse
portfolio of futures interests, but may trade a greater or lesser number of
futures interests, from time to time. Each Limited Partner will obtain greater
diversification in futures interests traded than would be possible trading
individually, unless substantially more than the minimum investment described
herein were committed to the futures interests markets.
PROFESSIONAL TRADING MANAGEMENT. Trading decisions for the Partnership are
made by the Trading Advisor retained by the General Partner. See "The Trading
Advisor." The trading programs employed on behalf of the Partnership by the
Trading Advisor are not available for investments as small as the required
minimum investment in the Partnership. The actual performance record of the
Partnership is set forth in "Performance Record of the Partnership." No
assurance is given that the Partnership will in the future obtain results
consistent with such past performance or that the Partnership will not incur
substantial losses in the future.
LIMITED LIABILITY. Unlike an individual who invests directly in futures
interests, an investor in the Partnership cannot be individually subject to
margin calls and cannot lose more than the amount of his unredeemed capital
contribution, his share of undistributed profits, if any, and, under certain
circumstances, any distributions and amounts received upon redemption of Units
and interest thereon. See "The Futures, Options, and Forward Markets,"
"Redemptions," and "The Limited Partnership Agreement--Nature of the
Partnership."
INTEREST INCOME. Many commodity brokers permit accounts above a certain
size to deposit margin for futures interests in the form of interest-bearing
obligations, such as U.S. Treasury Bills, rather than cash, thus enabling the
account to earn interest on funds being used for futures interests trading, or
such brokers pay interest at U.S. Treasury Bill rates on a portion of the cash
deposited in the account. The Partnership's assets will be deposited in futures
interests trading accounts with DWR as commodity broker. Effective on the day of
the Closing, DWR will credit the Partnership at each month-end with interest
income as if 80% of the Partnership's average daily Net Assets for the month
were invested at a prevailing rate on U.S. Treasury Bills. Generally, an
individual trader would not receive any interest on the funds in his futures
interests account unless he committed substantially more than the minimum
investment described herein. While the Partnership will be credited with
interest by DWR on a portion of its assets deposited as margin as described
above, the form of margin posted, whether cash or interest-bearing obligations
(such as U.S. Treasury Bills), does not reduce the risks inherent in the trading
of futures interests. See "Risk Factors" and "Investment Program, Use of
Proceeds and Trading Policies."
ADMINISTRATIVE CONVENIENCE. The Partnership is structured so as to provide
Limited Partners with numerous services designed to alleviate the administrative
details involved in engaging directly in futures interests trading, including
providing monthly and annual financial reports (showing, among other things, the
Net Asset Value of a Unit, trading profits or losses, and expenses), and all tax
information relating to the Partnership necessary for Limited Partners to
complete their federal income tax returns.
99
<PAGE>
LEGAL MATTERS
Legal matters in connection with the Units being offered hereby, including
the discussion of the material federal income tax considerations relating to the
acquisition, ownership and disposition of Units, have been passed upon for the
Partnership and the General Partner by Cadwalader, Wickersham & Taft, 100 Maiden
Lane, New York, New York 10038. Cadwalader, Wickersham & Taft also has acted as
counsel for DWR in connection with the offering of Units. Cadwalader, Wickersham
& Taft may advise the General Partner with respect to its responsibilities as
general partner of, and with respect to matters relating to, the Partnership.
EXPERTS
The financial statements of Dean Witter Portfolio Strategy Fund L.P. as of
December 31, 1996 and 1995 and for the three years ended December 31, 1996 and
the statements of financial condition of Demeter Management Corporation as of
December 31, 1996 and 1995 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as indicated in their reports with
respect thereto in this Prospectus, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing. Deloitte & Touche
LLP also acts as independent auditors for DWR.
ADDITIONAL INFORMATION
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits relating thereto that have been filed
with the Securities and Exchange Commission in Washington, D.C. For further
information pertaining to the Partnership and the Units offered hereby,
reference is hereby made to the Registration Statement, including the exhibits
filed as part thereof. The Registration Statement and exhibits are on file at
the offices of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and may be examined, without charge, at
the offices of the SEC, and copies may be obtained of all or part thereof from
the SEC upon payment of the prescribed fees.
100
<PAGE>
GLOSSARY
CERTAIN TERMS AND DEFINITIONS
Knowledge of various terms and concepts relating to this offering is
necessary for a potential investor to determine whether to invest in the
Partnership.
"Affiliate" -- An "affiliate" of a person means (i) any natural person,
partnership, corporation, association, or other legal entity directly or
indirectly owning, controlling, or holding with power to vote 10% or more of the
outstanding voting securities of such person; (ii) any partnership, corporation,
association, or other legal entity 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with power to
vote by such person; (iii) any natural person, partnership, corporation,
association, or other legal entity directly or indirectly controlling,
controlled by, or under common control with, such person; or (iv) any officer,
director or partner of such person.
"Brokerage Commission" -- The fee charged by a broker for executing a trade
in a commodity account of a customer. DWR will charge the Partnership brokerage
commissions at a roundturn rate of 80% of DWR's published non-member rates for
speculative accounts, subject to a cap (aggregated with transaction fees and
costs) of 13/20 of 1% per month (a 7.8% annual rate) of the Partnership's
adjusted Net Assets as of the last day of each month.
"Churning" -- Engaging in excessive trading with respect to a commodity
account for the purpose of generating brokerage commissions.
"Commodity Trading Advisor" -- Any person who for any consideration engages
in the business of advising others, either directly or indirectly, as to the
value or purchase of futures interests.
"Daily Limits" -- Limits imposed by commodity exchanges on the amount of
fluctuation in futures interest prices during a single trading day.
"Forward Contract" -- A contractual right to purchase or sell a specified
quantity of a commodity at or before a specified date in the future at a
specified price. It is distinguished from a futures contract in that it is not
traded on an exchange and it contains terms and conditions specifically
negotiated by the parties.
"Futures Contract" -- Standardized contract made on domestic or foreign
commodity exchanges which calls for the future delivery of a specified quantity
of a commodity at a specified time and place.
"Limit Order" -- An order to execute a trade at a specified price or better.
As contrasted with a stop order, a limit order does not become a market order
when the limit price is reached.
"Margin" -- Good faith deposits with a broker to assure fulfillment of a
purchase or sale of a commodity futures contract and, under certain
circumstances, a commodity option contract.
"Market Order" -- An order to execute a trade at the prevailing price as
soon as possible.
"Net Assets" -- The total assets of the Partnership (including, but not
limited to, all cash and cash equivalents (valued at cost), accrued interest and
amortization of original issue discount, and the market value of all open
futures interests positions and other assets of the Partnership), less the total
liabilities of the Partnership (including, but not limited to, one-half of the
brokerage commissions that would be payable with respect to the closing of each
of the Partnership's open futures interests positions, management fees,
incentive fees, administrative expenses, transaction fees and costs, and
extraordinary expenses), determined in accordance with generally accepted
accounting principles consistently applied under the accrual basis of
accounting. Unless generally accepted accounting principles require otherwise,
the market value of a futures interest traded on a United States exchange shall
mean the settlement price on the exchange on which the particular futures
interest shall be traded by the Partnership on the day with respect to which Net
Assets shall be determined, PROVIDED, HOWEVER, that if a futures interest could
not have been liquidated on such day due to the operation of daily limits or
other rules of the exchange upon which that futures interest shall be traded or
otherwise, the settlement price on the first subsequent day on which the futures
interest could have been liquidated
101
<PAGE>
shall be the market value of such futures interest for such day. The market
value of a futures interest traded on a foreign exchange or market shall mean
its market value as determined by the General Partner on a basis consistently
applied for each different variety of futures interest.
"Net Asset Value Per Unit" -- The Net Assets allocated to capital accounts
represented by Units of Limited Partnership Interest divided by the aggregate
number of Units of Limited Partnership Interest.
"Option" -- An option on a futures contract or a physical commodity gives
the buyer of the option the right, as opposed to the obligation, to take a
position at a specified price in an underlying futures contract or commodity.
"Organizational and Offering Expenses" -- Costs incurred in the organization
of the Partnership and the offering of Units, including legal, accounting and
auditing fees, printing costs, solicitation and marketing costs, and other
related fees and expenses.
"Pyramiding" -- Using unrealized profits on existing positions in a given
commodity due to favorable price movements as margin specifically to buy or sell
additional positions in the same or related commodity.
"Settlement Price" -- The closing price for futures contracts in a
particular commodity established by the clearinghouse or exchange after the
close of each day's trading.
"Speculative Position Limits" -- Limits established by the CFTC and United
States commodity exchanges on the maximum net long or short speculative
positions which a person or group of persons may hold, own, or control in
futures interests.
"Spot Contract" -- A cash market transaction in which the buyer and seller
agree to the immediate purchase and sale of a specific commodity lot, usually
with a two-day settlement.
"Stop Order" -- An order given to a broker to execute a trade in a futures
interest when the contract price reaches the specified stop order price. Stop
orders become market orders when the stop price is reached.
"Trading Profits" -- Net futures interests trading profits (realized and
unrealized) earned on Net Assets allocated to the Trading Advisor, including
interest income credited to the Partnership by DWR, decreased by monthly
management fees, brokerage commissions, floor brokerage fees, "give up" or
transfer fees, NFA fees, other transaction fees and costs, administrative
expenses, and other fees and expenses (excluding incentive fees payable) of the
Partnership; with such Trading Profits and items of decrease determined from the
last date as of which an incentive fee was earned by the Trading Advisor or, if
no incentive fee has been previously earned by the Trading Advisor, from the
date the Partnership commenced trading to the date as of which such incentive
fee calculation is made.
"Transaction Fees and Costs" -- Floor brokerage fees, exchange fees,
clearinghouse fees, NFA fees, "give up" or transfer fees, any costs associated
with taking delivery of futures interests, and fees for the execution of forward
contract transactions, EFP transactions, and the use of DWR's institutional and
overnight execution facilities.
"Unrealized Profit or Loss" -- The profit or loss which could be realized on
an open position if it were closed out at the current settlement price.
BLUE SKY GLOSSARY
Prospective investors should be aware of the following definitions,
reprinted verbatim from the "Guidelines for Registration of Commodity Pool
Programs" adopted by the North American Securities Administrators Association,
Inc., as revised in September, 1993 (the "Guidelines"), which Guidelines are
applied by certain state securities administrators in reviewing public offerings
of "commodity pools" (such as the Partnership). For ease of reference, each of
these definitions is followed by the comparable defined term used in the Limited
Partnership Agreement and this Prospectus, in brackets, as applicable.
102
<PAGE>
"Advisor" -- Any Person who for any consideration engages in the business of
advising others, either directly or indirectly, as to the value, purchase, or
sale of Commodity Contracts or commodity options. ["trading advisor" -- page
A-8]
"Affiliate" -- An Affiliate of a Person means (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person; (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote, by such Person; (c) any Person, directly or
indirectly, controlling, controlled by, or under common control of such Person;
(d) any officer, director or partner of such Person; or (e) if such Person is an
officer, director or partner, any Person for which such Person acts in any such
capacity. ["Affiliate" -- page A-18]
"Capital Contributions" -- The total investment in a Program by a
Participant or by all Participants, as the case may be. ["Unit of General
Partnership Interest" -- page A-3; "Units" -- page A-5]
"Commodity Broker" -- Any Person who engages in the business of effecting
transactions in Commodity Contracts for the account of others or for his own
account. ["DWR" -- page A-4; "commodity broker" -- page A-5]
"Commodity Contract" -- A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a traded
commodity at a specified price and delivery point. ["futures interests" -- page
A-1]
"Net Assets" -- The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles. Net Assets
shall include any unrealized profits or losses on open positions, and any fee or
expense including Net Asset fees accruing to the Program. ["Net Assets" -- page
A-7]
"Net Worth" -- The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles. ["net worth," as
regards subscribers' investment requirements, is referenced on pages 1, B-4,
B-5, and B-6; as regards the General Partner's net worth requirement, see
Section 5 of the Limited Partnership Agreement on page A-2]
"Organizational and Offering Expenses" -- All expenses incurred by the
Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program Interest under
federal and state law, including taxes and fees, accountants' and attorneys'
fees. ["organizational and offering expenses" -- page A-7]
"Participant" -- The holder of a Program Interest. ["General Partner,"
"Limited Partners," "Partners" -- page A-1]
"Person" -- Any natural Person, partnership, corporation, association or
other legal entity. [No comparable term]
"Program" -- The limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in Commodity
Contracts. ["Partnership" -- page A-1]
"Pyramiding" -- A method of using all or part of an unrealized profit in a
Commodity Contract position to provide margin for any additional Commodity
Contracts of the same or related commodities. [See trading policy 5 on page
A-11]
"Sponsor" -- Any Person directly or indirectly instrumental in organizing a
Program or any Person who will manage or participate in the management of a
Program, including a Commodity Broker who pays any portion of the Organizational
Expenses of the Program, and the general partner(s) and any other Person who
regularly performs or selects the Persons who perform services for the Program.
103
<PAGE>
Sponsor does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for professional
services rendered in connection with the offering of the units. The term
"Sponsor" shall be deemed to include its Affiliates. ["General Partner," "DWR,"
and their "Affiliates."]
"Valuation Date" -- The date as of which the Net Assets of the Program are
determined. [No comparable term, but for purposes of redemption, Net Assets of
the Partnership are determined as of the last business day of the month -- page
A-15]
104
<PAGE>
INDEPENDENT AUDITORS' REPORT
Tothe Limited Partners and the General Partner of
Dean Witter Portfolio Strategy Fund L.P.:
We have audited the accompanying statements of financial condition of Dean
Witter Portfolio Strategy Fund L.P. (formerly Dean Witter Principal Secured
Futures Fund L.P.) (the "Partnership") as of December 31, 1996 and 1995 and the
related statements of operations, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Portfolio Strategy Fund L.P. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
February 17, 1997
New York, New York
F-1
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995
--------------
1996 $
--------------
$
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash........................................................................... 87,847,358 78,404,128
Net unrealized gain on open contracts.......................................... 3,053,880 3,621,113
-------------- --------------
Total Trading Equity....................................................... 90,901,238 82,025,241
Interest receivable (DWR)...................................................... 300,473 252,974
-------------- --------------
Total Assets............................................................... 91,201,711 82,278,215
-------------- --------------
-------------- --------------
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
LIABILITIES:
Incentive fees payable......................................................... 2,587,891 320,038
Redemptions payable............................................................ 688,115 738,931
Management fee payable......................................................... 303,128 272,903
Accrued administrative expenses................................................ 158,510 279,755
Accrued brokerage commissions (DWR)............................................ 141,879 99,604
Accrued transaction fees and costs............................................. 10,045 6,603
Bank fee payable............................................................... -- 21,336
-------------- --------------
Total Liabilities.......................................................... 3,889,568 1,739,170
-------------- --------------
PARTNERS' CAPITAL:
Limited Partners (39,981.953 and 46,435.540 units, respectively)............... 85,273,194 78,914,381
General Partner (956 units).................................................... 2,038,949 1,624,664
-------------- --------------
Total Partners' Capital.................................................... 87,312,143 80,539,045
-------------- --------------
Total Liabilities and Partners' Capital.................................... 91,201,711 82,278,215
-------------- --------------
-------------- --------------
NET ASSET VALUE PER UNIT......................................................... 2,132.79 1,699.44
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994
---------- ----------
1996 $ $
------------
$
<S> <C> <C> <C>
REVENUES
Trading Profit (Loss):
Realized............................ 26,235,502 23,275,553 2,385,705
Net change in unrealized............ (567,233) 58,584 (1,311,896)
------------ ---------- ----------
Total Trading Results........... 25,668,269 23,334,137 1,073,809
Interest income (DWR)................. 2,994,841 3,189,901 2,560,400
------------ ---------- ----------
Total Revenues.................. 28,663,110 26,524,038 3,634,209
------------ ---------- ----------
EXPENSES
Brokerage commissions (DWR)........... 3,416,583 2,700,065 2,712,291
Management fees....................... 3,281,267 3,332,702 3,650,550
Incentive fees........................ 3,278,840 1,587,389 1,106,885
Transaction fees and costs............ 233,900 231,876 204,327
Letter of credit fees................. 31,571 106,168 73,791
Administrative expenses............... 27,000 108,000 108,000
------------ ---------- ----------
Total Expenses.................. 10,269,161 8,066,200 7,855,844
------------ ---------- ----------
NET INCOME (LOSS)....................... 18,393,949 18,457,838 (4,221,635)
------------ ---------- ----------
------------ ---------- ----------
Net Income (Loss) Allocation:
Limited Partners...................... 17,979,664 18,129,110 (4,152,982)
General Partner....................... 414,285 328,728 (68,653)
Net Income (Loss) Per Unit:
Limited Partners...................... 433.35 343.86 (77.55)
General Partner....................... 433.35 343.86 (77.55)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
LIMITED GENERAL TOTAL
UNITS OF PARTNERS PARTNER --------------
PARTNERSHIP -------------- -----------
INTEREST $
-------------- $ $
<S> <C> <C> <C> <C>
Partners' Capital, December 31, 1993............... 70,372.131 99,403,283 1,448,891 100,852,174
Net Loss........................................... -- (4,152,982) (68,653) (4,221,635)
Redemptions........................................ (13,999.787) (20,128,939) (84,302) (20,213,241)
-------------- -------------- ----------- --------------
Partners' Capital, December 31, 1994............... 56,372.344 75,121,362 1,295,936 76,417,298
Net Income......................................... -- 18,129,110 328,728 18,457,838
Redemptions........................................ (8,980.804) (14,336,091) -- (14,336,091)
-------------- -------------- ----------- --------------
Partners' Capital, December 31, 1995............... 47,391.540 78,914,381 1,624,664 80,539,045
Net Income......................................... -- 17,979,664 414,285 18,393,949
Redemptions........................................ (6,453.587) (11,620,851) -- (11,620,851)
-------------- -------------- ----------- --------------
Partner's Capital December 31, 1996................ 40,937.953 85,273,194 2,038,949 87,312,143
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
$ $ $
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... 18,393,949 18,457,838 (4,221,635)
Noncash item included in net income (loss):
Net change in unrealized........................... 567,233 (58,584) 1,311,896
(Increase) decrease in operating assets:
Interest receivable (DWR).......................... (47,499) 22,726 (121,436)
Increase (decrease) in operating liabilities:
Incentive fees payable............................. 2,267,853 320,038 --
Accrued management fees............................ 30,225 13,116 (81,222)
Accrued administrative expenses.................... (121,245) 68,263 (2,097)
Accrued brokerage commissions (DWR)................ 42,275 848 27,880
Accrued transaction fees and costs................. 3,442 165 1,814
Bank fee payable................................... (21,336) 21,336 --
----------- ----------- -----------
Net cash provided by (used for) operating
activities.......................................... 1,114,897 18,845,746 (3,084,800)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable........... (50,816) (520,160) 149,625
Redemptions of units................................. (11,620,851) (14,336,091) (20,213,241)
----------- ----------- -----------
Net cash used for financing activities............... (11,671,667) (14,856,251) (20,063,616)
----------- ----------- -----------
Net increase (decrease) in cash...................... 9,443,230 3,989,495 (23,148,416)
Balance at beginning of period....................... 78,404,128 74,414,633 97,563,049
----------- ----------- -----------
Balance at end of period............................. 87,847,358 78,404,128 74,414,633
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Dean Witter Portfolio Strategy Fund L.P., formerly named Dean
Witter Principal Secured Futures Fund L.P.) (the "Partnership"), is a limited
partnership organized to engage in the speculative trading of commodity futures
contracts, commodity option contracts and forward contracts on foreign
currencies. The general partner for the Partnership is Demeter Management
Corporation ("Demeter"). The commodity broker is Dean Witter Reynolds Inc.
("DWR"). Both DWR and Demeter are wholly-owned subsidiaries of Dean Witter,
Discover & Co. ("DWD"). Demeter has retained John W. Henry & Company, Inc.
("JWH") as the trading advisor of the Partnership.
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by Demeter and Limited Partners based
upon their proportional ownership interests.
On July 31, 1996, with the Partnership's Net Asset Value above $1,000 per
Unit, the letter of credit arrangement which assured investors who redeemed
their Units on July 31, 1996 a minimum Net Asset Value of $1,000 per Unit
expired. On August 1, 1996, the Partnership was renamed and continued trading in
a non-guaranteed format. Both the reduction of interest income of 1.125% per
annum for the letter of credit fee paid by DWR and the letter of credit fee of
1% of new appreciation were eliminated effective August 1, 1996.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements.
REVENUE RECOGNITION--Commodity futures contracts and forward contracts on
foreign currencies are open commitments until settlement date. They are valued
at market and the resulting unrealized gains and losses are reflected in income.
Prior to August 1, 1996, DWR paid the Partnership interest income monthly based
upon 80% of the average daily Net Assets for the month that was allocated to
JWH's KT Diversified Program, Financial and Metals Portfolio, International
Foreign Exchange Program, and The World Financial Perspective at a rate equal to
the average yield on 13-week U.S. Treasury Bills issued during such month less a
monthly letter of credit fee paid by DWR. DWR paid Citibank, N.A. ("Citibank")
on the twentieth day of each month a Letter of Credit fee of 3/32 of 1% per
month of the amount available to be drawn under the Letter of Credit. Such
amounts for the period ended July 31, 1996 and the years ended December 31, 1995
and 1994 were $306,187, $586,638, and $721,257, respectively. Additionally, DWR
paid the Partnership interest income based upon 100% of the Partnership's
average daily Net Assets which were allocated to JWH's InterRate-TM- trading
program for the month at a rate equal to the average yield on 13-week U.S.
Treasury Bills issued during such month. For purposes of such interest payments,
Net Assets did not include monies due the Partnership on forward contracts and
other commodity interests, but not actually received.
Effective August 1, 1996, DWR pays the Partnership monthly interest income
based upon 80% of the average daily Net Assets for the month at a rate equal to
the average yield on 13-week U.S. Treasury Bills issued during the month. For
purposes of such interest payments, Net Assets do not include monies due the
Partnership on forward contracts and other commodity interests, but not actually
received.
NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the
weighted average number of Units outstanding during the period.
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset
"Equity in Commodity futures trading accounts" consists of cash on deposit at
DWR to be used as margin for trading and the
F-6
<PAGE>
net asset or liability related to unrealized gains or losses on open contracts.
The asset or liability related to the unrealized gains or losses on forward
contracts is presented as a net amount because the Partnership has a master
netting agreement with DWR.
BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS--The
Partnership accrues brokerage commissions on a half-turn basis at 80% of DWR's
published non-member rates. Transaction fees and costs are accrued on a
half-turn basis. Prior to September 1, 1996, brokerage commissions were capped
at 3/4 of 1% per month of the Partnership's Net Assets as defined in the Limited
Partnership Agreement. Additionally, each trading program's brokerage
commissions were capped at 1% per month of the Net Assets allocated to such
trading program.
Effective September 1, 1996, brokerage commissions and transaction fees
chargeable to the Partnership were capped at 13/20 of 1% per month of the
Partnership's month-end Net Assets (as defined in the Limited Partnership
Agreement), with such cap applied on a per trading program basis.
OPERATING EXPENSES--The Partnership bears all operating expenses related to
its trading activities, to a maximum of 1/4 of 1% annually of the Partnership's
average month-end Net Assets. These include filing fees, clerical,
administrative, auditing, accounting, mailing, printing, and other incidental
operating expenses as permitted by the Limited Partnership Agreement. In
addition, the Partnership incurs a monthly management fee and may incur an
incentive fee. Prior to August 1, 1996, pursuant to a Letter of Credit and
Reimbursement Agreement with JWH and Citibank, the Partnership paid to Citibank
a quarterly Letter of Credit fee equal to 1% of the Partnership's "New
Appreciation," as defined in the Letter of Credit and Reimbursement Agreement,
of the Partnership's Net Assets as of the end of each calendar quarter. Such fee
was accrued in each month in which "New Appreciation" occurred. In those months
in which "New Appreciation" was negative, prior accruals, if any, during the
quarter were reduced. Demeter and/or DWR bear all other operating expenses,
including expenses which would be incurred if the Partnership were required to
register as an investment company.
REDEMPTIONS--Limited Partners are able to redeem some or all of their Units
at 100% of the Net Asset Value per Unit at the last day of any month that is at
least six months after the closing at which a client first became a limited
partner, upon five business days' advance notice by redemption form to Demeter.
DISTRIBUTIONS--Distributions, other than on redemptions of Units, are made
on a pro-rata basis at the sole discretion of Demeter. No distributions have
been made to date.
INCOME TAXES--No provision for income taxes has been made in the
accompanying financial statements, as partners are individually responsible for
reporting income or loss based upon their respective share of the Partnership's
revenues and expenses for income tax purposes.
DISSOLUTION OF THE PARTNERSHIP--The Partnership will terminate on December
31, 2025 or at an earlier date if certain conditions set forth in the Limited
Partnership Agreement occur.
2. RELATED PARTY TRANSACTIONS
The Partnership's cash is on deposit with DWR in commodity trading accounts
to meet margin requirements as needed. DWR pays interest on these funds as
described in Note 1. Under its Customer Agreement with DWR, the Partnership pays
DWR brokerage commissions as described in Note 1.
3. TRADING ADVISOR
Compensation to JWH consists of a management fee and an incentive fee as
follows:
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/3
of 1% per month of the Partnership's adjusted Net Assets, as defined in the
Limited Partnership Agreement, as of the last day of each month.
INCENTIVE FEE--The Partnership pays a quarterly incentive fee to JWH equal
to 15% of the Partnership's "Trading Profits," as defined in the Management
Agreement, as of the end of each calendar quarter. Such incentive fee is accrued
in each month in which "Trading Profits" occurs. In those months in which
"Trading Profits" are negative, previous accruals, if any, during the incentive
F-7
<PAGE>
period will be reduced. In those instances in which a Limited Partner redeems an
investment, the incentive fee (if earned through a redemption date) is to be
paid to JWH on those redemptions in the month of such redemptions.
4. FINANCIAL INSTRUMENTS
The Partnership trades futures and forward contracts in interest rates,
stock indices, commodities, currencies, petroleum, and precious metals. Futures
and forwards represent contracts for delayed delivery of an instrument at a
specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility. At December 31, 1996 and 1995, open contracts were:
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
------------------------------
1996 1995
-------------- --------------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures:
Commitments to Purchase........................................................ 65,197,000 107,229,000
Commitments to Sell............................................................ 70,325,000 20,701,000
Commodity Futures:
Commitments to Purchase........................................................ 5,005,000 14,171,000
Commitments to Sell............................................................ 30,977,000 10,132,000
Foreign Futures:
Commitments to Purchase........................................................ 42,509,000 125,880,000
Commitments to Sell............................................................ 67,755,000 67,755,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS
Commitments to Purchase........................................................ 89,146,000 43,693,000
Commitments to Sell............................................................ 38,531,000 82,529,000
</TABLE>
A portion of the amounts indicated as off-balance-sheet risk in forward
foreign currency contracts is due to offsetting forward commitments to purchase
and to sell the same currency on the same date in the future. These commitments
are economically offsetting, but are not offset in the forward market until the
settlement date.
The net unrealized gains on open contracts are reported as a component of
"Equity in Commodity futures trading accounts" on the Statements of Financial
Condition and totaled $3,053,880 and $3,621,113 at December 31, 1996 and 1995,
respectively.
Of the $3,053,880 net unrealized gain on open contracts at December 31,
1996, $3,465,469 related to exchange-traded futures contracts and $(411,589)
related to off-exchange-traded forward currency contracts. Of the $3,621,113 net
unrealized gain on open contracts at December 31, 1995, $3,632,875 related to
exchange-traded futures contracts and $(11,762) related to off-exchange-traded
forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31,
1996 and 1995 mature through December 1997 and December 1996, respectively.
Off-exchange-traded forward currency contracts held by the Partnership at
December 31, 1996 and 1995 mature through March 1997 and January 1996,
respectively. The contract amounts in the above table represent the
Partnership's extent of involvement in the particular class of financial
instrument, but not the credit risk associated with counterparty nonperformance.
The credit risk associated with these instruments is limited to the amounts
reflected in the Partnership's Statements of Financial Condition.
The Partnership also has credit risk because DWR acts as the futures
commission merchant or the sole counterparty, with respect to most of the
Partnership's assets. Exchange-traded futures contracts are marked to market on
a daily basis, with variations in value settled on a daily basis. DWR, as the
futures commission merchant for all of the Partnership's exchange-traded futures
contracts, is required
F-8
<PAGE>
pursuant to regulations of the Commodity Futures Trading Commission, to
segregate from its own assets, and for the sole benefit of its commodity
customers, all funds held by DWR with respect to exchange-traded futures
contracts, including an amount equal to the net unrealized gain on all open
futures contracts, which funds totaled $91,312,827 and $82,037,003 at December
31, 1996 and 1995, respectively. With respect to the Partnership's
off-exchange-traded forward currency contracts, there are no daily settlements
of variations in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated. With respect to
those off-exchange-traded forward currency contracts, the Partnership is at risk
to the ability of DWR, the counterparty on all such contracts, to perform.
For the years ended December 31, 1996 and 1995, the average fair value of
financial instruments held for trading purposes was as follows:
<TABLE>
<CAPTION>
1996
<S> <C> <C>
ASSETS LIABILITIES
---------------- ----------------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures........................................................... 102,149,000 96,292,000
Commodity Futures........................................................... 13,649,000 28,690,000
Foreign Futures............................................................. 116,142,000 42,572,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS................................ 113,353,000 134,819,000
</TABLE>
<TABLE>
<CAPTION>
1995
<S> <C> <C>
ASSETS LIABILITIES
---------------- ----------------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures........................................................... 80,726,000 48,675,000
Commodity Futures........................................................... 6,335,000 23,478,000
Foreign Futures............................................................. 63,976,000 29,814,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS................................ 50,560,000 99,829,000
</TABLE>
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, and on March 13, 1997 similar purported
class actions were filed in the Superior Court of the State of California,
County of Los Angeles, on behalf of all purchasers of interests in limited
partnership commodity pools sold by DWR. Named defendants include DWR, Demeter,
Dean Witter Futures and Currency Management Inc., DWD (all such parties referred
to hereafter as the "Dean Witter Parties"), the Partnership (under its original
name), certain other limited partnership commodity pools of which Demeter is the
general partner, and certain trading advisors (including JWH) to those 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 (including JWH) on behalf
of all purchasers of interests in various limited partnership commodity pools,
including the Partnership, sold by DWR. Generally, these complaints allege,
among other things, that the defendants committed fraud, deceit,
misrepresentation, breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in connection with the sale and
operation of the various limited partnership commodity pools. The complaints
seek unspecified amounts of compensatory and punitive damages and other relief.
It is possible that additional similar actions may be filed and that, in the
course of these actions, other parties could be added as defendants. The Dean
Witter Parties believe that they and the Partnership have strong defenses to,
and they will vigorously contest, the actions. Although the ultimate outcome of
legal proceedings cannot be predicted with certainty, it is the opinion of
management of the Dean Witter Parties that the resolution of the actions will
not have a material adverse effect on the financial condition or the results of
operations of any of the Dean Witter Parties or the Partnership.
F-9
<PAGE>
6. SUBSEQUENT EVENTS
The General Partner has determined to reopen the Partnership for additional
investment and will register with the Securities and Exchange Commission 50,000
Units to be offered to investors for a limited time in a public offering.
If at the Closing an incentive fee has accrued on trading profits, the
accrued incentive fee will become due and be paid to the Trading Advisor.
Units redeemed on or prior to the last day of the twelfth month after such
Units were purchased will be subject to a redemption charge equal to 3% of the
Net Asset Value of a Unit on the date of such redemption. Units redeemed after
the last day of the twelfth month and on or prior to the last day of the
eighteenth month after which such Units were purchased will be subject to a
redemption charge equal to 2% of the Net Asset Value of a Unit on the date of
such redemption. Units redeemed after the last day of the eighteenth month and
on or prior to the last day of the twenty-fourth month after which such Units
were purchased will be subject to a redemption charge equal to 1% of the Net
Asset Value of a Unit on the date of such redemption. Units redeemed after the
last day of the twenty-fourth month after which such Units were purchased will
not be subject to a redemption charge.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
Tothe Board of Directors of
Demeter Management Corporation:
We have audited the accompanying statements of financial condition of Demeter
Management Corporation (a wholly-owned subsidiary of Dean Witter, Discover &
Co.) (the "Company") as of December 31, 1996 and 1995. These statements of
financial condition are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such statements of financial condition present fairly, in all
material respects, the financial position of Demeter Management Corporation as
of December 31, 1996 and 1995 in conformity with generally accepted accounting
principles.
/S/ DELOITTE & TOUCHE LLP
February 17, 1997
New York, New York
F-11
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF DEAN WITTER, DISCOVER & CO. ("DWD"))
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
$ $
Investments in affiliated partnerships (Note 2).............................. 18,955,507 17,788,814
Receivable from affiliated partnership....................................... 1,049 1,154
---------------- ----------------
TOTAL ASSETS......................................................... 18,956,556 17,789,968
---------------- ----------------
---------------- ----------------
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
LIABILITIES:
Payable to DWD (Note 3).................................................. 15,762,235 15,157,797
Income taxes payable..................................................... 114,218 156,337
Accrued expenses......................................................... 30,379 32,579
---------------- ----------------
TOTAL LIABILITIES.................................................... 15,906,832 15,346,713
---------------- ----------------
STOCKHOLDER'S EQUITY:
Common stock, no par value:
Authorized 1,000 shares;
Issued and outstanding 100 shares
at stated value of $500 per share.................................... 50,000 50,000
Additional paid-in capital............................................... 111,170,000 111,170,000
Retained earnings........................................................ 2,899,724 2,293,255
---------------- ----------------
114,119,724 113,513,255
Less: Notes receivable from DWD (Note 4)................................. (111,070,000) (111,070,000)
---------------- ----------------
TOTAL STOCKHOLDER'S EQUITY........................................... 3,049,724 2,443,255
---------------- ----------------
TOTAL LIABILITIES AND 18,956,556 17,789,968
STOCKHOLDER'S EQUITY................................................
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF DEAN WITTER, DISCOVER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of
Dean Witter, Discover & Co. ("DWD").
Demeter manages the following commodity pools as their sole general partner:
Dean Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III, Dean Witter
Cornerstone Fund IV, Columbia Futures Fund, Dean Witter Diversified Futures Fund
Limited Partnership ("DWDFF"), Dean Witter Diversified Futures Fund II L.P.,
Dean Witter Diversified Futures Fund III L.P., Dean Witter Multi-Market
Portfolio L.P. (formerly Dean Witter Principal Guaranteed Fund L.P.), Dean
Witter Principal Plus Fund L.P. ("DWPPF"), Dean Witter Principal Plus Fund
Management L.P., Dean Witter Portfolio Strategy Fund L.P. (formerly Dean Witter
Principal Secured Futures Fund L.P.) ("DWPSF"), Dean Witter Select Futures Fund
L.P. ("DWSFF"), Dean Witter Global Perspective Portfolio L.P., Dean Witter World
Currency Fund L.P., Dean Witter Institutional Balanced Portfolio Account I L.P.
("DWIBP I"), Dean Witter Institutional Account II L.P., DWFCM International
Access Fund L.P., Dean Witter Anchor Institutional Balanced Portfolio Account
L.P., Dean Witter Spectrum Balanced L.P., Dean Witter Spectrum Strategic L.P.,
Dean Witter Spectrum Technical L.P., DWR Chesapeake L.P., DWR Institutional
Balanced Portfolio Account III L.P., and DWR/JWH Futures Fund L.P. ("DWR/JWH").
Each of the commodity pools is a limited partnership organized to engage in
the speculative trading of commodity futures contracts, forward contracts on
foreign currencies and other commodity interests.
Demeter reopened DWDFF for additional investment and on June 30, 1995 DWDFF
registered with the Securities and Exchange Commission (the "SEC") 75,000 units
which were offered to investors for a limited time in a public offering.
Demeter terminated Dean Witter Principal Guaranteed Fund III L.P. ("DWPGF
III") as of September 30, 1995. DWPGF III received the guarantee payment
necessary to bring the net asset value per unit to $1,000, and all units were
redeemed.
Demeter reopened DWPPF for additional investment and on November 8, 1995
DWPPF registered with the SEC 75,000 units which were offered to investors for a
limited time in a public offering.
In November of 1995, Demeter entered into a limited partnership agreement as
General Partner in DWR/JWH, which offered units to investors in an initial
private offering period ending January 31, 1996 and began trading on February 1,
1996. Demeter's initial investment in DWR/JWH was $75,000.
Demeter terminated Dean Witter Principal Guaranteed Fund II L.P. ("DWPGF
II") as of March 31, 1996. DWPGF II was liquidated and holders of units as of
March 31, 1996 received a final distribution equal to the net asset value per
unit on that date multiplied by their respective number of units.
On July 31, 1996, with the Net Asset Value of DWPSF above $1,000 per unit,
the letter of credit arrangement which assured investors who redeemed their
units on July 31, 1996 a minimum Net Asset Value of $1,000 per unit expired. On
August 1, 1996, that partnership was renamed "Dean Witter Portfolio Strategy
Fund L.P." and will continue trading in a non-guaranteed format. As a result,
both the reduction of interest income of 1.125% per annum for the letter of
credit fee paid by Dean Witter Reynolds Inc. ("DWR") and the letter of credit
fee of 1% of new appreciation have been eliminated.
Demeter reopened DWSFF for additional investment and on August 13, 1996
DWSFF registered with the SEC 60,000 Units which are being offered to investors
for a limited time in a public offering.
F-13
<PAGE>
On August 20, 1996, Demeter ceased trading activities in DWIBP I and
distributed approximately 97% of DWIBP I's assets. At that time, there were open
forward positions maturing through December 1996. DWIBP I will liquidate and
distribute its remaining assets in 1997.
INCOME TAXES--The results of operations of Demeter are included in the
consolidated federal income tax return of DWD, computed on a separate company
basis and due to DWD.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements.
2. INVESTMENTS IN AFFILIATED PARTNERSHIPS
The limited partnership agreement of each commodity pool requires Demeter to
maintain a general partnership interest in each partnership, generally in an
amount equal to, but not less than, 1 percent of the aggregate capital
contributed to the partnership by all partners.
The total assets, liabilities and partners' capital of all the funds managed
by Demeter at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
---------------- ----------------
$ $
<S> <C> <C>
Total assets....................................................... 1,084,660,072 1,091,082,360
Total liabilities.................................................. 27,893,698 20,934,451
Total partners' capital............................................ 1,056,766,374 1,070,147,909
</TABLE>
Demeter's investments in the above limited partnerships are carried at
market value with changes in such market value reflected currently in
operations.
3. PAYABLE TO DWD
The payable to DWD is primarily for amounts due for the purchase of
partnership investments.
4. NET WORTH REQUIREMENT
At December 31, 1996 and 1995, Demeter held non-interest bearing notes from
DWD that were payable on demand. These notes were received in connection with
additional capital contributions aggregating $111,070,000.
The limited partnership agreement of each commodity pool requires Demeter to
maintain its net worth at an amount not less than 10% of the capital
contributions by all partners in each pool in which Demeter is the general
partner (15% if the capital contributions to any partnership are less than
$2,500,000, or $250,000, whichever is less).
In calculating this requirement, Demeter's interests in each limited
partnership and any amounts receivable from or payable to such partnerships are
excluded from net worth. Notes receivable from DWD are included in net worth for
purposes of this calculation.
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, and on March 13, 1997, similar purported
class actions were filed in the Superior Court of the State of California,
County of Los Angeles, on behalf of all purchasers of interests in limited
partnership commodity pools sold by DWR. Named defendants include DWR, Demeter,
Dean Witter Futures and Currency Management Inc., DWD (all such parties referred
to hereafter as the "Dean Witter Parties"), certain limited partnership
commodity pools of which Demeter is the general partner, and certain trading
advisors to those pools. Similar purported class actions were also filed on
September 18 and 20, 1996 in the Supreme Court of the State of New York, New
York County, and on November 14, 1996 in the Superior Court of the State of
Delaware, New Castle County, against the Dean Witter Parties and certain trading
advisors on behalf of all purchasers of interests in various limited partnership
commodity pools sold by DWR. Generally, these complaints allege, among other
things, that the defendants committed fraud, deceit, misrepresentation, breach
of fiduciary duty,
F-14
<PAGE>
fraudulent and unfair business practices, unjust enrichment, and conversion in
connection with the sale and operation of the various limited partnership
commodity pools. The complaints seek unspecified amounts of compensatory and
punitive damages and other relief. It is possible that additional similar
actions may be filed and that, in the course of these actions, other parties
could be added as defendants. The Dean Witter Parties believe that they have
strong defenses to, and they will vigorously contest, the actions. Although the
ultimate outcome of legal proceedings cannot be predicted with certainty, it is
the opinion of management of the Dean Witter Parties that the resolution of the
actions will not have a material adverse effect on the financial condition or
the results of operations of any of the Dean Witter Parties.
6. SUBSEQUENT EVENTS
On February 5, 1997, DWD and Morgan Stanley Group Inc. ("Morgan Stanley")
announced a definitive agreement to merge. The new company will be named Morgan
Stanley, Dean Witter, Discover & Co. Under the terms of the merger agreement
unanimously approved by the Boards of Directors of both companies, each Morgan
Stanley common share will be exchanged for 1.65 common shares of DWD. Morgan
Stanley preferred shares outstanding at the date of the merger will be exchanged
for preferred shares of DWD having substantially identical terms. The
transaction, which is expected to be completed in mid-1997, is intended to be a
tax-free exchange and accounted for as a pooling of interest and is subject to
customary closing conditions, including certain regulatory approvals and the
approval of shareholders of both companies.
Demeter has determined to reopen DWPSF for additional investment and will
register with the SEC 50,000 units to be offered to investors for a limited time
in a public offering.
F-15
<PAGE>
EXHIBIT A
TABLE OF CONTENTS TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
FOR DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C> <C>
1. Formation; Name............................................................................................ A-1
2. Office..................................................................................................... A-1
3. Business................................................................................................... A-1
4. Term; Dissolution; Fiscal Year............................................................................. A-2
(a) Term............................................................................................ A-2
(b) Dissolution..................................................................................... A-2
(c) Fiscal Year..................................................................................... A-2
5. Net Worth of General Partner............................................................................... A-2
6. Capital Contributions and Offering of Units of Limited Partnership Interest................................ A-3
7. Allocation of Profits and Losses; Accounting; Other Matters................................................ A-5
(a) Capital Accounts................................................................................ A-5
(b) Monthly Allocations............................................................................. A-5
(c) Allocation of Profit and Loss for Federal Income Tax Purposes................................... A-5
(d) Definitions; Accounting......................................................................... A-7
(e) Expenses and Limitations Thereof................................................................ A-7
(f) Limited Liability of Limited Partners........................................................... A-8
(g) Return of Limited Partner's Capital Contribution................................................ A-8
(h) Distributions................................................................................... A-8
(i) Interest on Assets.............................................................................. A-8
Management and Trading Policies............................................................................
8. A-9
(a) Management of the Partnership................................................................... A-9
(b) General Partner................................................................................. A-9
(c) General Trading Policies........................................................................ A-10
(d) Changes to Trading Policies..................................................................... A-11
(e) Miscellaneous................................................................................... A-12
9. Audits; Reports to Limited Partners........................................................................ A-13
10. Transfer; Redemption of Units.............................................................................. A-14
(a) Transfer........................................................................................ A-14
(b) Redemption...................................................................................... A-15
11. Special Power of Attorney.................................................................................. A-16
12. Withdrawal of Partners..................................................................................... A-16
13. No Personal Liability for Return of Capital................................................................ A-17
14. Standard of Liability; Indemnification..................................................................... A-17
(a) Standard of Liability........................................................................... A-17
(b) Indemnification by the Partnership.............................................................. A-17
(c) Affiliate....................................................................................... A-18
(d) Indemnification by Partners..................................................................... A-18
15. Amendments; Meetings....................................................................................... A-18
(a) Amendments With Consent of the General Partner.................................................. A-18
(b) Meetings........................................................................................ A-19
(c) Amendments and Actions Without Consent of the General Partner................................... A-19
(d) Action Without Meeting.......................................................................... A-19
(e) Amendments to Certificate of Limited Partnership................................................ A-20
16. Additional Offerings....................................................................................... A-20
17. Governing Law.............................................................................................. A-20
18. Miscellaneous.............................................................................................. A-20
(a) Priority Among Limited Partners................................................................. A-20
(b) Notices......................................................................................... A-20
(c) Binding Effect.................................................................................. A-20
(d) Captions........................................................................................ A-20
Annex A--Request for Redemption....................................................................................... A-22
</TABLE>
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
This Agreement of Limited Partnership, made as of August 28, 1990, as
amended and restated as of , 1997 (this "Agreement"), by and among
Demeter Management Corporation, a Delaware corporation (the "General Partner"),
and the other parties who shall execute this Agreement, whether in counterpart,
by separate instrument, or otherwise, as limited partners (collectively "Limited
Partners"; the General Partner and Limited Partners may be collectively referred
to herein as "Partners").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to form a limited partnership for the
purpose of engaging in the speculative trading of futures interests;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. FORMATION; NAME.
The parties hereto do hereby form a limited partnership under the Delaware
Revised Uniform Limited Partnership Act, as amended and in effect on the date
hereof (the "Act"). The name of the limited partnership is Dean Witter Portfolio
Strategy Fund L.P. (the "Partnership"). The General Partner may, without the
approval of the Limited Partners, change the name of the Partnership, or cause
the Partnership to transact business under another name. The General Partner
shall notify all Limited Partners (or any assignees thereof) of any such change.
The General Partner shall execute and file a Certificate of Limited Partnership
of the Partnership (the "Certificate of Limited Partnership") in accordance with
the Act and shall execute, file, record, and publish as appropriate such
amendments, assumed name certificates, and other documents as necessary or
advisable in connection with the operation of the Partnership, as determined by
the General Partner, and shall take all steps which the General Partner may deem
necessary or advisable to allow the Partnership to conduct business as a limited
partnership where the Partnership conducts business in any jurisdiction and to
otherwise provide that the Limited Partners will have limited liability with
respect to the activities of the Partnership in all such jurisdictions, and to
comply with the law of any jurisdiction. Each Limited Partner hereby undertakes
to furnish to the General Partner a power of attorney and such additional
information as the General Partner may request to complete and execute such
documents, and to cooperate in the filing, recording, or publishing of such
documents as the General Partner determines appropriate.
2. OFFICE.
The principal office of the Partnership shall be Two World Trade Center,
62nd Floor, New York, New York 10048, or such other place as the General Partner
may designate from time to time.
The address of the principal office of the Partnership in the State of
Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801, and the name and
address of the registered agent for service of process on the Partnership in the
State of Delaware is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other
agent as the General Partner shall designate from time to time.
3. BUSINESS.
The Partnership's business and general purpose is to trade, buy, sell,
spread, or otherwise acquire, hold, or dispose of commodities (including, but
not limited to, foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, and any other securities or items which are
now, or may hereafter be, the subject of futures contract trading), domestic and
foreign commodity futures contracts, commodity forward contracts, foreign
exchange commitments, options on physical commodities and on futures contracts,
spot (cash) commodities and currencies, and any rights pertaining thereto
(collectively, "futures interests") and securities (such as United States
Treasury securities)
A-1
<PAGE>
approved by the Commodity Futures Trading Commission (the "CFTC") for investment
of customer funds, and to engage in all activities incident thereto. The
objective of the Partnership's business is appreciation of its assets through
speculative trading. The Partnership may pursue this objective in any lawful
manner consistent with the Partnership's trading policies. The Partnership may
engage in the foregoing activities either directly or through any lawful
transaction or any lawful activity into which a limited partnership may enter or
in which a limited partnership may engage under the laws of the State of
Delaware; PROVIDED, that such transactions or activities do not subject the
Limited Partners to any liability in excess of the limited liability provided
for herein and contemplated by the Act.
4. TERM; DISSOLUTION; FISCAL YEAR.
(A) TERM. The term of the Partnership shall commence upon the filing of
the Certificate of Limited Partnership in the Office of the Secretary of State
of the State of Delaware and shall end upon the first to occur of the following:
(a) December 31, 2025; (b) insolvency, bankruptcy, dissolution, liquidation, or
termination of any general partner, unless the business of the Partnership shall
be continued by any remaining or successor general partner(s) in accordance with
the provisions hereof; (c) the occurrence of any event which shall make it
unlawful for the existence of the Partnership to be continued; (d) a
determination by the General Partner that the Partnership must register under
the Investment Company Act of 1940, as amended (the "1940 Act"), and the failure
of the Limited Partners to effect any necessary approvals to bring the
Partnership into compliance with the 1940 Act; (e) an election to terminate and
dissolve the Partnership at a specified time by Limited Partners owning more
than 50% of the Units (as defined in Section 6) then outstanding, notice of
which is sent by registered mail to the General Partner not less than 90 days
prior to the effective date of such termination and dissolution; (f) withdrawal
by the General Partner (unless a new general partner(s) is elected by the
Limited Partners as provided in Section 15(c); (g) a decline in the Net Asset
Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as
determined by the General Partner) on any day to less than $250; (h) a decline
in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close
of business (as determined by the General Partner) on any day to $250,000 or
less; (i) a determination by the General Partner that the Partnership's Net
Assets in relation to the operating expenses of the Partnership make it
unreasonable or imprudent to continue the business of the Partnership; or (j) a
determination by the General Partner to terminate the Partnership following a
Special Redemption Date as described in Section 9.
(B) DISSOLUTION. Upon the occurrence of an event causing the termination
of the Partnership, the Partnership shall terminate and be dissolved.
Dissolution, payment of creditors, and distribution of the Partnership's Net
Assets shall be effected as soon as practicable in accordance with the Act,
except that the General Partner and each Limited Partner (and any assignee)
shall share in the Net Assets of the Partnership pro rata in accordance with
such Partner's respective capital account, less any amount owing by such Partner
(or assignee) to the Partnership. The General Partner shall, at its option, be
entitled to supervise the liquidation of the Partnership.
Nothing contained in this Agreement shall impair, restrict, or limit the
rights and powers of the Partners under the law of the State of Delaware and any
other jurisdiction in which the Partnership shall be conducting business to
reform and reconstitute themselves as a limited partnership following
dissolution of the Partnership, either under provisions identical to those set
forth herein or any others which they shall deem appropriate.
(C) FISCAL YEAR. The fiscal year of the Partnership shall begin on January
1 of each year and end on the following December 31.
5. NET WORTH OF GENERAL PARTNER.
The General Partner agrees that at all times, as long as it remains General
Partner of the Partnership, it shall maintain its Net Worth at an amount not
less than 10% of the total contributions to the Partnership by all Partners and
to any other limited partnership for which it acts as a general partner by all
such partnership's partners; PROVIDED, HOWEVER, that if the total contributions
to the Partnership by all Partners, or to any limited partnership for which it
acts as a general partner by all partners, are less
A-2
<PAGE>
than $2,500,000, then with respect to the Partnership and any such limited
partnership, the General Partner shall maintain its Net Worth at an amount of at
least 15% of the total contributions to the Partnership by all Partners and of
the total contributions to any such limited partnership for which it acts as
general partner by all such partnership's partners or $250,000, whichever is the
lesser; and, PROVIDED, FURTHER, that in no event shall the General Partner's Net
Worth be less than $50,000. For the purposes of this Section 5, Net Worth shall
be calculated in accordance with generally accepted accounting principles,
except as otherwise specified in this Section 5, with all current assets based
on their then current market values. The interests owned by the General Partner
in the Partnership and any other partnerships for which it acts as a general
partner and any notes and accounts receivable and payable to any limited
partnership in which it has an interest shall not be included as an asset in
calculating its Net Worth, but any notes receivable from an affiliate (as such
term is defined in Regulation S-X of the rules and regulations of the Securities
and Exchange Commission (the "SEC")) of the General Partner or letters of credit
may be included.
The General Partner agrees that it shall not be a general partner of any
limited partnership other than the Partnership unless, at all times when it is a
general partner of any such additional limited partnership, its Net Worth is at
least equal to the Net Worth required by the preceding paragraph of this Section
5.
The requirements of the preceding two paragraphs of this Section 5 may be
modified by the General Partner at its option, without notice to or the consent
of the Limited Partners, PROVIDED THAT: (a) such modification does not adversely
affect the interests of the Limited Partners, and (b) the General Partner
obtains a written opinion of counsel for the Partnership that such proposed
modification: (i) will not adversely affect the classification of the
Partnership as a partnership for federal income tax purposes, (ii) will not
adversely affect the status of the Limited Partners as limited partners under
the Act, and (iii) will not violate any applicable state securities or Blue Sky
law or any rules, regulations, guidelines, or statements of policy promulgated
or applied thereunder; PROVIDED, HOWEVER, that the General Partner's net worth
may not be reduced below the lesser of (A) the net worth required by Section
II.B of the Guidelines for Registration of Commodity Pool Programs, as adopted
in revised form by the North American Securities Administrators Association,
Inc. in September 1993 (the "NASAA Guidelines"), and (B) the net worth required
by such Guidelines as in effect on the date of such proposed modification.
6. CAPITAL CONTRIBUTIONS AND OFFERING OF UNITS OF LIMITED PARTNERSHIP INTEREST.
The General Partner is herewith contributing $1,000 in cash to the
Partnership for which it is receiving one Unit of General Partnership Interest
("Unit of General Partnership Interest"). At the initial closing, if any, for
the acceptance of subscriptions for Units of Limited Partnership Interest of the
Partnership ("Units" or, individually, a "Unit") during the initial offering of
Units (the "Initial Closing"), the General Partner shall contribute to the
Partnership in $1,000 increments the additional amount in cash that is necessary
to make the General Partner's capital contribution at least equal to the greater
of (a) $25,000 and (b) 1% of the aggregate capital contributions to the
Partnership by all Partners (including the General Partner's contribution). Such
additional contribution by the General Partner need not exceed the amount
described above and shall be evidenced by Units of General Partnership Interest.
Thereafter, the General Partner shall maintain its interest in the capital of
the Partnership at no less than the amount stated above. The General Partner,
without notice to or consent of the Limited Partners, may withdraw any portion
of its interest in the Partnership that is in excess of its required interest
described above. The net asset value of a Unit of General Partnership Interest
shall at all times be equivalent to the Net Asset Value of a Unit of Limited
Partnership Interest.
Interests in the Partnership, other than the General Partnership Interest of
the General Partner, shall be Units. The initial Limited Partner named at the
end of this Agreement is herewith contributing $1,000 in cash to the capital of
the Partnership in consideration for receiving one Unit. The initial Limited
Partner agrees to withdraw as a Limited Partner at the Initial Closing, and the
remaining
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Partners hereby consent to such withdrawal. The $1,000 capital contribution of
the initial Limited Partner shall be returned to him, without interest, and he
shall have no further rights or obligations as a Limited Partner with respect to
such contribution.
The General Partner, for and on behalf of the Partnership, shall issue and
sell Units to persons desiring to become Limited Partners, PROVIDED that such
persons shall be determined by the General Partner to be qualified investors and
their subscriptions for Units shall be accepted by the General Partner, which
acceptance the General Partner may withhold in whole or in part in its sole
discretion. The minimum subscription for Units per subscriber shall be such
amount as the General Partner shall determine from time to time in its sole
discretion.
Following the initial offering of Units, the Initial Closing, and the
commencement of trading operations, the Partnership, directly and/or through
Dean Witter Reynolds Inc. ("DWR") or such other selling agent or agents as may
be approved by the General Partner, may at any time and from time to time in the
sole discretion of the General Partner offer for sale Units and fractions of
Units (to the third decimal place) in public and/or private offerings, at prices
per Unit, in such minimum amounts, for such periods of time, and on such terms
and conditions as the General Partner shall determine in its sole discretion.
Units offered during any subsequent offering shall be issued and sold by the
Partnership as of the opening of business (as determined by the General Partner)
on the first business day of a fiscal quarter or month and a closing for
subscriptions received during such offering shall be held as of such date;
PROVIDED, HOWEVER, that the General Partner may hold closings at such other
times and for such other periods as it shall determine in its sole discretion to
effectuate such subsequent offerings. At each such closing, the Partnership
shall issue and sell Units to each subscriber whose subscription shall be
accepted by the General Partner at a price per Unit to be determined by the
General Partner in its sole discretion; PROVIDED, HOWEVER, that the offering
price per Unit during any subsequent offering of Units shall not at any time be
less than the Net Asset Value of a Unit as of the opening of business on the
date of the applicable closing at which such Unit shall be issued and sold.
During any subsequent offering, Units may be subscribed for by the General
Partner, DWR, Dean Witter, Discover & Co. ("DWD"), any trading advisor to the
Partnership, and such persons' respective shareholders, directors, officers,
partners, employees, principals, and affiliates. Subscriptions for Units by such
persons shall not preclude them from receiving compensation from the Partnership
for services rendered by them in their respective capacities as other than
Limited Partners. No subscriber for Units during any subsequent offering of
Units shall become a Limited Partner until the General Partner shall: (a) accept
such subscriber's subscription at the closing relating to such offering; (b)
execute this Agreement on behalf of such subscriber pursuant to the power of
attorney in Section 11; and (c) make an entry on the books and records of the
Partnership reflecting that such subscriber has been admitted as a Limited
Partner. Accepted subscribers shall be deemed Limited Partners at such time as
their admission shall be reflected on the books and records of the Partnership.
The aggregate of all capital contributions to the Partnership shall be available
to the Partnership to carry on its business and no interest shall be paid by the
Partnership on any such contribution.
In connection with the Partnership's offering of Units, the General Partner,
on behalf of the Partnership, shall: (a) cause to be filed one or more
Disclosure Documents and such amendments and supplements thereto as the General
Partner shall deem advisable or as may be required by applicable law with the
CFTC and the National Futures Association ("NFA"), Forms D or other
applications, notices or forms with the SEC and state securities and Blue Sky
administrators, and Registration Statements, Prospectuses (as used hereinafter,
the term "Prospectus" shall mean the most recent version of the Prospectus filed
with the SEC in connection with the offering of Units, unless the context
otherwise requires) and such amendments and supplements thereto as the General
Partner shall deem advisable or as may be required by applicable law, with the
CFTC, the NFA, the SEC, and the National Association of Securities Dealers,
Inc.; (b) qualify by registration or exemption from registration the Units for
sale under the Blue Sky and securities laws of such states of the United States
and such other jurisdictions as the General Partner in its sole discretion shall
deem advisable or as may be required by applicable law; (c) make such
arrangements for the sale of Units as it shall deem advisable, including
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engaging DWR or any other firm as selling agent for Units and entering into a
selling agreement with DWR or such other firm; and (d) take such action with
respect to and in order to effectuate the matters described in clauses (a)
through (c) as it shall deem advisable or necessary.
All Units subscribed for shall be issued subject to the collection of good
funds. If, at any time, good funds representing payment for Units are not made
available to the Partnership because a subscriber has provided bad funds in the
form of a bad check or draft or otherwise to DWR or another selling agent which,
in turn, has deposited the subscription amount with the escrow agent, the
Partnership shall cancel the Units issued to such subscriber represented by such
bad funds, and the subscriber's name shall be removed as a Limited Partner from
the books and records of the Partnership. Any losses or profits sustained by the
Partnership in connection with its commodity trading allocable to such cancelled
Units shall be deemed a decrease or increase in Net Assets and allocated among
the remaining Partners as described in Section 7. Each Limited Partner agrees to
reimburse the Partnership for any expense or loss (including any trading loss)
incurred in connection with the issuance and cancellation of any such Units
issued to such Limited Partner.
7. ALLOCATION OF PROFITS AND LOSSES; ACCOUNTING; OTHER MATTERS.
(A) CAPITAL ACCOUNTS. A capital account shall be established for each
Partner. The initial balance of each Partner's capital account shall be the
amount of a Partner's initial capital contribution to the Partnership.
(B) MONTHLY ALLOCATIONS. As of the close of business (as determined by the
General Partner) on the last day of each calendar month ("Determination Date")
during each fiscal year of the Partnership, the following determinations and
allocations shall be made:
(1) The Net Assets of the Partnership (as defined in Section 7(d)(1)),
before accrual of the monthly management fees and incentive fees payable to
the trading advisors shall be determined.
(2) The accrued monthly management fees shall then be charged against
Net Assets.
(3) The accrued incentive fees, if any, payable to the trading advisors
shall then be charged against Net Assets.
(4) Any increase or decrease in Net Assets (after the adjustments in
subparagraphs (2) and (3) above), over those of the immediately preceding
Determination Date (or, in the case of the first Determination Date, the
Initial Closing), shall then be credited or charged to the capital accounts
of each Partner in the ratio that the balance of each account bears to the
balance of all accounts.
(5) The amount of any distribution to a Partner, any amount paid to a
Partner on redemption of Units and any amount paid to the General Partner
upon withdrawal of its interest in the Partnership shall be charged to that
Partner's capital account.
(C) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES. As of
the end of each fiscal year of the Partnership, the Partnership's realized
profit or loss shall be allocated among the Partners pursuant to the following
subparagraphs for federal income tax purposes. Such allocations of profit and
loss will be pro rata from net capital gain or loss and net operating income or
loss realized by the Partnership. For United States federal income tax purposes,
a distinction will be made between net short-term gain or loss and net long-term
gain or loss.
(1) Items of ordinary income (such as interest or credits in lieu of
interest) and expense (such as the management fees, incentive fees,
transaction fees and costs, administrative expenses, and extraordinary
expenses) shall be allocated pro rata among the Partners based on their
respective capital accounts (exclusive of these items of ordinary income or
expense) as of the end of each month in which the items of ordinary income
or expense accrued.
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(2) Net realized capital gain or loss from the Partnership's trading
activities shall be allocated as follows:
(aa) For the purpose of allocating the Partnership's net realized
capital gain or loss among the Partners, there shall be established an
allocation account with respect to each outstanding Unit. The initial
balance of each allocation account shall be the amount paid by the
Partner to the Partnership for the Unit. Allocation accounts shall be
adjusted as of the end of each fiscal year and as of the date a Partner
completely redeems his Units as follows:
(i) Each allocation account shall be increased by the amount of
income allocated to the holder of the Unit pursuant to subparagraph
(c)(1) above and subparagraph (c)(2)(cc) below.
(ii) Each allocation account shall be decreased by the amount of
expense or loss allocated to the holder of the Unit pursuant to
subparagraph (c)(1) above and subparagraph (c)(2)(ee) below and by
the amount of any distribution the holder of the Unit has received
with respect to the Unit (other than on redemption of Units).
(iii) When a Unit is redeemed, the allocation account with respect
to such Unit shall be eliminated.
(bb) Net realized capital gain shall be allocated first to each
Partner who has partially redeemed his Units during the fiscal year up to
the excess, if any, of the amount received upon redemption of the Units
over the allocation account attributable to the redeemed Units.
(cc) Net realized capital gain remaining after the allocation thereof
pursuant to subparagraph (c)(2)(bb) above shall be allocated next among
all Partners whose capital accounts are in excess of their Units'
allocation accounts (after the adjustments in subparagraph (c)(2)(bb)
above) in the ratio that each such Partner's excess bears to all such
Partners' excesses. In the event that gain to be allocated pursuant to
this subparagraph (c)(2)(cc) is greater than the excess of all such
Partners' capital accounts over all such allocation accounts, the excess
will be allocated among all Partners in the ratio that each Partner's
capital account bears to all Partners' capital accounts.
(dd) Net realized capital loss shall be allocated first to each
Partner who has partially redeemed his Units during the fiscal year up to
the excess, if any, of the allocation account attributable to the
redeemed Units over the amount received upon redemption of the Units.
(ee) Net realized capital loss remaining after the allocation thereof
pursuant to subparagraph (c)(2)(dd) above shall be allocated next among
all Partners whose Units' allocation accounts are in excess of their
capital accounts (after the adjustments in subparagraph (c)(2)(dd) above)
in the ratio that each such Partner's excess bears to all such Partners'
excesses. In the event that loss to be allocated pursuant to this
subparagraph (c)(2)(ee) is greater than the excess of all such allocation
accounts over all such Partners' capital accounts, the excess loss will
be allocated among all Partners in the ratio that each Partner's capital
account bears to all Partners' capital accounts.
(3) The tax allocations prescribed by this Section 7(c) shall be made to
each holder of a Unit whether or not the holder is a substituted Limited
Partner. In the event that a Unit has been transferred or assigned pursuant
to Section 10(a), the allocations prescribed by this Section 7(c) shall be
made with respect to such Unit without regard to the transfer or assignment,
except that in the year of transfer or assignment the allocations prescribed
by this Section 7(c) shall be divided between the transferor or assignor and
the transferee or assignee based on the number of months each held the
transferred or assigned Unit. For purposes of this Section 7(c), tax
allocations shall be made to the General Partner's Units of General
Partnership Interest on a Unit-equivalent basis.
(4) The allocation of profit and loss for federal income tax purposes
set forth herein is intended to allocate taxable profits and loss among
Partners generally in the ratio and to the extent
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that net profit and net loss are allocated to such Partners under Section
7(b) hereof so as to eliminate, to the extent possible, any disparity
between a Partner's capital account and his allocation account with respect
to each Unit then outstanding, consistent with the principles set forth in
Section 704(c)(2) of the Internal Revenue Code of 1986, as amended (the
"Code").
(D) DEFINITIONS; ACCOUNTING.
(1) NET ASSETS. The Partnership's "Net Assets" shall mean the total assets
of the Partnership (including, but not limited to, all cash and cash equivalents
(valued at cost), accrued interest and amortization of original issue discount,
and the market value of all open futures interests positions and other assets of
the Partnership) less the total liabilities of the Partnership (including, but
not limited to, one-half of the brokerage commissions that would be payable with
respect to the closing of each of the Partnership's open futures interests
positions, management fees, incentive fees, administrative expenses, transaction
fees and costs, and extraordinary expenses) determined in accordance with
generally accepted accounting principles consistently applied under the accrual
basis of accounting. Unless generally accepted accounting principles require
otherwise, the market value of a futures interest traded on a United States
exchange shall mean the settlement price on the exchange on which the particular
futures interest shall be traded by the Partnership on the day with respect to
which Net Assets shall be determined; PROVIDED, HOWEVER, that if a futures
interest could not have been liquidated on such day due to the operation of
daily limits or other rules of the exchange upon which that futures interest
shall be traded or otherwise, the settlement price on the first subsequent day
on which the futures interest could have been liquidated shall be the market
value of such futures interest for such day. The market value of a futures
interest traded on a foreign exchange or market shall mean its market value as
determined by the General Partner on a basis consistently applied for each
different variety of futures interest.
(2) NET ASSET VALUE. The "Net Asset Value" of a Unit shall mean the Net
Assets allocated to capital accounts represented by Units of Limited Partnership
Interest divided by the aggregate number of Units of Limited Partnership
Interest.
(E) EXPENSES AND LIMITATIONS THEREOF. DWR shall pay all of the
organizational and offering expenses of the Partnership (including, but not
limited to, legal, accounting, and auditing fees, printing costs, filing fees,
escrow fees, marketing costs and expenses, and other related expenses), and
shall not be reimbursed therefor.
The Partnership shall pay all of its ordinary administrative expenses,
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 Partnership, subject to a maximum of 0.25% per year of the Partnership's
average Net Assets (calculated on the basis of the average of month-end Net
Assets during each calendar year). The General Partner or an affiliate thereof
shall pay and shall not be reimbursed for any such administrative expenses in
excess of such maximum amount. 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 shall not be reimbursed by the
Partnership for any costs incurred by it relating to office space, equipment,
and staff necessary for Partnership operations and administration of redemptions
of Units. The Partnership will be obligated to pay any extraordinary expenses
(determined in accordance with generally accepted accounting principles) it may
incur; PROVIDED, HOWEVER, that the costs of bringing the Partnership into
compliance with the Investment Company Act of 1940, as amended, and registering
as an investment company, should such registration be required, shall be paid by
either the General Partner or DWR.
The Partnership's assets held by DWR or other commodity brokers as provided
in Section 7(i) may be used as margin solely for the Partnership's trading. The
Partnership shall bear all commodity brokerage fees and commissions and, except
as otherwise set forth herein or described in the Prospectus, shall be obligated
to pay all liabilities incurred by it, including, without limitation, all fees
and
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expenses incurred in connection with its trading activities (including floor
brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give up" or
transfer fees, costs associated with the taking of delivery of futures
interests, fees for the execution of forward contract transactions, fees for the
execution of cash transactions relating to the exchange of futures for physical
transactions, and the use of DWR's institutional and overnight execution
facilities (collectively, "transaction fees and costs")), and management and
incentive fees payable to its trading advisors. Appropriate reserves may be
created, accrued, and charged against Net Assets for contingent liabilities, if
any, as of the date any such contingent liability becomes known to the General
Partner. Such reserves shall reduce the Net Asset Value of interests in the
Partnership for all purposes, including redemptions.
The following special limits shall apply to the Partnership's fees and
expenses, in accordance with Section IV.C of the NASAA Guidelines: (a) the
aggregate of (i) the management fees payable by the Partnership to the trading
advisors for the Partnership, and (ii) the Partnership's customary and routine
administrative expenses (other than commodity brokerage commissions, transaction
fees and costs, incentive fees, legal and auditing fees and expenses, and
extraordinary expenses), shall not exceed 1/2 of 1% of the Partnership's Net
Assets per month, or 6% of the Partnership's Net Assets annually; (b) the
quarterly incentive fees payable by the Partnership to any trading advisors for
the Partnership shall not exceed 15% of the Partnership's Trading Profits (as
defined in the Prospectus), PROVIDED that such incentive fees may be increased
by 2% for each 1% by which the aggregate fees and expenses described in clause
(a) of this sentence are limited below the 6% of Net Assets annual limit thereon
(I.E., if such fees and expenses are limited to 4% of Net Assets, the maximum
incentive fee payable may be increased to 19%); (c) the brokerage commissions
(excluding transaction fees and costs) payable by the Partnership to DWR or any
other commodity broker for the Partnership shall not exceed 80% of DWR's or such
other commodity broker's published non-member rates for speculative accounts;
and (d) the aggregate of (i) the brokerage commissions payable by the
Partnership to DWR or any other commodity broker for the Partnership, (ii) the
transaction fees and costs payable by the Partnership, and (iii) the net excess
interest and compensating balance benefits to DWR or any other commodity broker
for the Partnership (after crediting the Partnership with interest, as described
in Section 7(i) and the Prospectus), shall not exceed 14% annually of the
Partnership's average monthly Net Assets as of the last day of each month during
each calendar year. The General Partner or an affiliate thereof shall pay and
shall not be reimbursed for any fees and expenses in excess of any such limits.
(F) LIMITED LIABILITY OF LIMITED PARTNERS. Each Unit, when purchased by a
Limited Partner in accordance with the terms of this Agreement, shall be fully
paid and nonassessable. No Limited Partner shall be liable for the Partnership's
obligations in excess of such Partner's unredeemed capital contribution,
undistributed profits, if any, and any distributions and amounts received upon
redemption of Units, together with interest thereon. The Partnership shall not
make a claim against a Limited Partner with respect to amounts distributed to
such Partner or amounts received by such Partner upon redemption of Units unless
the Net Assets of the Partnership (which shall not include any right of
contribution from the General Partner except to the extent previously made by it
pursuant to this Agreement) shall be insufficient to discharge the liabilities
of the Partnership which shall have arisen prior to the payment of such amounts.
(G) RETURN OF LIMITED PARTNER'S CAPITAL CONTRIBUTION. Except to the extent
that a Limited Partner shall have the right to withdraw capital through
redemption of Units in accordance with Section 10(b), no Limited Partner shall
have any right to demand the return of his capital contribution or any profits
added thereto, except upon termination and dissolution of the Partnership. In no
event shall a Limited Partner be entitled to demand or receive from the
Partnership property other than cash.
(H) DISTRIBUTIONS. The General Partner shall have sole discretion in
determining what distributions (other than on redemption of Units), if any, the
Partnership shall make to its Partners. If made, all distributions shall be pro
rata in accordance with the respective capital accounts of the Partners and may
be made by credit to a Limited Partner's account with DWR or by check if such
account is closed.
(I) INTEREST ON ASSETS. The Partnership shall deposit all of its assets
with DWR and such other commodity brokers as the Partnership shall utilize from
time to time, and such assets shall be used by
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the Partnership to engage in futures interests trading. Unless provided
otherwise in the Prospectus, such assets will be invested in securities approved
by the CFTC for investment of customer funds or held in non-interest-bearing
accounts, and DWR will credit the Partnership at month-end with interest income
as set forth in the Prospectus.
8. MANAGEMENT AND TRADING POLICIES.
(A) MANAGEMENT OF THE PARTNERSHIP. Except as may be otherwise specifically
provided herein, the General Partner, to the exclusion of all Limited Partners,
shall conduct and manage the business of the Partnership, including without
limitation, the investment of the funds of the Partnership. No Limited Partner
shall have the power to represent, act for, sign for, or bind the General
Partner or the Partnership. Except as provided herein, no Partner shall be
entitled to any salary, draw, or other compensation from the Partnership. Each
Limited Partner hereby undertakes to furnish to the General Partner such
additional information as may be determined by the General Partner to be
required or appropriate for the Partnership to open and maintain an account or
accounts with commodity brokerage firms for the purpose of trading in futures
interests.
The General Partner shall be under a fiduciary duty to conduct the affairs
of the Partnership in the best interests of the Partnership. The Limited
Partners will under no circumstances be permitted to contract away, or be deemed
to have contracted away, the fiduciary obligations owed them by the General
Partner under statutory or common law. The General Partner shall have fiduciary
responsibility for the safekeeping of all of the funds and assets of the
Partnership, whether or not in its immediate possession or control, and the
General Partner shall not employ, or permit another to employ, such funds or
assets in any manner except for the benefit of the Partnership.
In the event that the General Partner at any time believes, upon the advice
of counsel to the General Partner or as a result of a position taken by the SEC,
that the Partnership may be required to register as an investment company under
the 1940 Act, then the General Partner may terminate the Partnership's futures
interests trading activity, liquidate all open futures interests and take such
action as the General Partner believes appropriate to avoid the requirement that
the Partnership register as an investment company or take all action the General
Partner believes appropriate or necessary to register the Partnership as an
investment company and bring the Partnership into compliance with the 1940 Act.
(B) GENERAL PARTNER. The General Partner, on behalf of the Partnership,
shall retain one or more trading advisors (who may include officers, employees,
and affiliates of the General Partner, DWR, and DWD; PROVIDED, HOWEVER, that no
such officer, employee or affiliate shall be retained as trading advisor to the
Partnership until the first business day following a Redemption Date (as defined
in Section 10(b)), and (i) notice of such retention must be mailed to each
Limited Partner at least five business days prior to the last date on which a
"Request for Redemption" (as defined in Section 10(b)) must be received by the
General Partner with respect to the applicable Redemption Date; and (ii) such
notice must describe the redemption and voting rights of Limited Partners, as
set forth in Sections 10(b) and 15) to make all trading decisions for the
Partnership and shall delegate complete trading discretion to such trading
advisors; PROVIDED, HOWEVER, that the General Partner may override any trading
instructions: (i) that the General Partner, in its sole discretion, determines
to be in violation of any trading policy of the Partnership, as set forth in
subsection (c) below; (ii) to the extent the General Partner believes doing so
is necessary for the protection of the Partnership; (iii) to terminate the
futures interests trading of the Partnership; (iv) to comply with applicable
laws or regulations; or (v) as and to the extent necessary, upon the failure of
a trading advisor to comply with a request to make the necessary amount of funds
available to the Partnership within five days of such request, to fund
distributions, redemptions, or reapportionments among trading advisors or to pay
the expenses of the Partnership; and PROVIDED, FURTHER, that the General Partner
may make trading decisions at any time at which a trading advisor shall become
incapacitated or some other emergency shall arise as a result of which such
trading advisor shall be unable or unwilling to act and a successor trading
advisor has not yet been retained.
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The Partnership shall not enter into any agreement with DWR or its
affiliates (other than a selling agreement as contemplated by Section 6) which
has a term of more than one year and which does not provide that it shall be
terminable by the Partnership without penalty upon 60 days' prior written notice
by the General Partner; PROVIDED, HOWEVER, that any such agreement may provide
for automatic renewal for additional one-year terms unless either the
Partnership or DWR or its affiliates, upon written notice given not less than 60
days prior to the original termination date or any extended termination date,
notifies the other party of its intention not to renew.
Subject to the foregoing paragraph, the General Partner is hereby
authorized, on behalf of the Partnership, to enter into the form of management
agreement described in the Prospectus (the "Management Agreement") with any
trading advisor described in the Prospectus, and to cause the Partnership to pay
to such person the management and incentive fees provided for in the Management
Agreements, as described in the Prospectus.
The General Partner is further authorized: (a) to modify (including changing
the form and amount of compensation and other arrangements and terms) or
terminate any management agreement in its sole discretion in accordance with the
terms of such agreements and to employ from time to time other trading advisors
for the Partnership pursuant to management agreements having such terms and
conditions and providing for such form and amount of compensation as the General
Partner in its sole discretion shall deem to be in the best interests of the
Partnership, which terms may include provision for the payment of an incentive
fee to a new or replacement trading advisor or advisors which shall be based on
any trading profits which shall be earned by such trading advisor(s),
irrespective of whether such profits shall exceed trading losses incurred by any
previous or existing trading advisor or advisors or by the Partnership as a
whole; (b) to enter into the Customer Agreement described in the Prospectus (the
"Customer Agreement") with DWR, as commodity broker, and to cause the
Partnership to pay to DWR brokerage commissions and transaction costs at the
rates provided for in the Customer Agreement and as described in the Prospectus;
and (c) to modify (including changing the form and amount of compensation and
other arrangements and terms) and terminate the Customer Agreement in its sole
discretion in accordance with the terms of such Agreement and to employ from
time to time other commodity brokers for the Partnership pursuant to customer
agreements having such terms and conditions and providing for such form and
amount of compensation as the General Partner in its sole discretion shall deem
to be in the best interest of the Partnership, PROVIDED, HOWEVER, that the
General Partner shall review at least annually the brokerage arrangements with
the Partnership to ensure that such brokerage commissions are fair, reasonable,
and competitive, and represent the best price and services available, taking
into consideration, in particular, when the commodity broker is an "affiliate"
of the General Partner (as such term is defined in Section 14(c)): (i) the size
of the Partnership; (ii) the futures interests trading activity; (iii) the
services provided by the commodity broker, the General Partner or any affiliate
thereof to the Partnership; (iv) the cost incurred by the commodity broker, the
General Partner or any affiliate thereof in organizing and operating the
Partnership and offering Units; (v) the overall costs to the Partnership; (vi)
any excess interest and compensating balance benefits to the commodity broker
from assets held thereby; and (vii) if the General Partner does not receive any
direct compensation from the Partnership for its services as General Partner,
the risks incurred by the General Partner as such.
The General Partner may subdivide or combine Units in its discretion,
provided that no such subdivision or combination shall affect the Net Asset
Value of any Limited Partner's interest in the Partnership.
(C) GENERAL TRADING POLICIES. The General Partner shall require any
trading advisor retained by the Partnership to follow the trading policies set
forth below. The following trading policies are applicable to the Partnership as
a whole and do not apply to the trading of any individual trading advisor.
1. The trading advisors will trade only in those futures interests that
have been approved by the General Partner. The Partnership normally will not
establish new positions in a futures interest for any one contract month or
option if such additional positions would result in a net long or short
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position for that futures interest requiring as margin or premium more than
15% of the Partnership's Net Assets. In addition, the Partnership will,
except under extraordinary circumstances, maintain positions in futures
interests in at least two market segments (I.E., agricultural items,
industrial items (including energies), metals, currencies, and financial
instruments (including stock, financial, and economic indexes) ) at any one
time.
2. The Partnership will not acquire additional positions in any futures
interest if such additional positions would result in the aggregate net long
or short positions for all futures interests requiring as margin or premium
for all outstanding positions more than 66 2/3% of the Partnership's Net
Assets. Under certain market conditions, such as an abrupt increase in
margins required by an exchange or its clearinghouse or an inability to
liquidate open positions because of daily price fluctuation limits or both,
the Partnership may be required to commit as margin amounts in excess of the
foregoing limit. In such event, a trading advisor will reduce its open
positions to comply with the foregoing limit before initiating new
positions.
3. The Partnership will trade currencies and other commodities in the
interbank and forward contract markets only with banks, brokers, dealers,
and other financial institutions which the General Partner, in conjunction
with DWR, has determined to be creditworthy. In determining the
creditworthiness of a counterparty to a forward contract, the General
Partner and DWR will consult with the Corporate Credit Department of DWR
which monitors participants in the interbank and forward markets with which
DWR deals on a regular basis.
4. The trading advisors will not generally take a position after the
first notice day in any futures interest during the delivery month of that
futures interest, except to match trades to close out a position on the
interbank foreign currency or other forward markets or liquidate trades in a
limit market.
5. The Partnership will not employ the trading technique commonly known
as "pyramiding," in which the speculator uses unrealized profits on existing
positions in a given futures interest due to favorable price movement as
margin specifically to buy or sell additional positions in the same or a
related futures interest. Taking into account the Partnership's open trade
equity on existing positions in determining generally whether to acquire
additional futures interest positions on behalf of the Partnership will not
be considered to constitute "pyramiding."
6. The Partnership will not purchase, sell, or trade securities (except
securities approved by the CFTC for investment of customer funds). The
Partnership may, however, trade in futures contracts on securities and
securities indexes, options on such futures contracts, and other commodity
options.
7. The Partnership will not under any circumstances lend money to
affiliated entities or otherwise. The Partnership will not utilize
borrowings except if the Partnership purchases or takes delivery of
commodities. Use of lines of credit in connection with forward trading does
not, however, constitute borrowing for purposes of this trading limitation.
8. The Partnership will not permit "churning" of the Partnership's
assets.
9. If the Partnership borrows money, to the extent permitted by Trading
Policy 7, from the General Partner or any "affiliate" thereof (as defined in
the first sentence of Section 14(c)), the lending entity in such case (the
"Lender") may not receive interest in excess of its interest costs, nor may
the Lender receive interest in excess of the amounts which would be charged
the Partnership (without reference to the General Partner's financial
abilities or guarantees) by unrelated banks on comparable loans for the same
purpose, nor may the Lender or any affiliate thereof receive any points or
other financing charges or fees regardless of the amount.
(D) CHANGES TO TRADING POLICIES. The General Partner shall not make any
material change in the trading policies in Section 8(c) without obtaining prior
written approval of Limited Partners owning more than 50% of the outstanding
Units.
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(E) MISCELLANEOUS. The General Partner may take such other actions as it
deems necessary or desirable to manage the business of the Partnership,
including, but not limited to, the following: opening bank accounts and paying
or authorizing the payment of distributions to the Partners and the expenses of
the Partnership, such as brokerage fees and commissions, management and
incentive fees, and transaction fees and costs.
The General Partner shall prepare or cause to be prepared and shall file on
or before the due date (or any extension thereof) any federal, state, or local
tax returns which shall be required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by the Partnership;
PROVIDED, HOWEVER, that the General Partner shall not be required to cause the
Partnership to pay any tax so long as the General Partner or the Partnership
shall be in good faith and by appropriate legal proceedings contesting the
validity, applicability, or amount thereof and such contest shall not materially
endanger any right or interest of the Partnership.
The General Partner shall be authorized to perform all duties imposed by
Section 6221 through 6233 of the Code on the General Partner as "tax matters
partner" of the Partnership, including but not limited to, the following: (a)
the power to conduct all audits and other administrative proceedings with
respect to Partnership tax items; (b) the power to extend the statute of
limitations for all Limited Partners with respect to Partnership tax items; (c)
the power to file a petition with an appropriate federal court for review of a
final Partnership administrative adjustment; and (d) the power to enter into a
settlement with the Internal Revenue Service on behalf of, and binding upon,
those Limited Partners having less than a 1% interest in the Partnership, unless
a Limited Partner shall have notified the Internal Revenue Service and the
General Partner that the General Partner may not act on such Partner's behalf.
If the Partnership is required to withhold United States taxes on income
with respect to Units held by Limited Partners who are nonresident alien
individuals, foreign corporations, foreign partnerships, foreign trusts, or
foreign estates, the General Partner may pay such tax out of its own funds and
then be reimbursed out of the proceeds of any distribution or redemption with
respect to such Units.
The General Partner shall keep at the principal office of the Partnership
such books and records relating to the business of the Partnership as it deems
necessary or advisable, as are required by the Commodity Exchange Act, as
amended (the "CEAct"), and the CFTC's rules and regulations thereunder, or as
shall be required by other regulatory bodies, exchanges, boards, and authorities
having jurisdiction. Such books and records shall be retained by the Partnership
for not less than five years.
The Partnership's books and records shall be available to Limited Partners
or their authorized attorneys or agents for inspection and copying during normal
business hours of the Partnership and, upon request. The General Partner shall
send copies of same to any Limited Partner upon payment by him of reasonable
reproduction and distribution costs. Any subscription documentation executed by
a Limited Partner in connection with his purchase of Units shall be retained by
the Partnership for not less than six years.
Except as described herein or in the Prospectus, no person may receive,
directly or indirectly, any advisory, management, or incentive fee for
investment advice who shares or participates in per trade commodity brokerage
commissions paid by the Partnership. No commodity broker for the Partnership may
pay, directly or indirectly, rebates or "give-ups" to the General Partner or any
trading advisor, and such prohibitions may not be circumvented by any reciprocal
business arrangements. Assets of the Partnership shall not be commingled with
assets of any other person. Margin deposits and deposits of assets with a
commodity broker shall not constitute commingling.
The General Partner shall devote such time and resources to the
Partnership's business and affairs as it in its sole discretion shall deem
necessary or advisable to effectively manage the Partnership. Subject to Section
5, the General Partner may engage in other business activities and shall not be
required to refrain from any other activity or disgorge any profits from any
such activity, whether as general partner of additional partnerships formed for
investment in futures interests or otherwise. The
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General Partner may engage and compensate, on behalf and from funds of the
Partnership, such persons, firms, or corporations, including any affiliated
person or entity, as the General Partner in its sole judgment shall deem
advisable for the conduct and operation of the business of the Partnership;
PROVIDED, HOWEVER, that, except as described herein and in the Prospectus, the
General Partner shall not engage any person, firm, or corporation which is an
affiliate (as defined in the first sentence of Section 14(c)) of the General
Partner to perform services for the Partnership without having made a good faith
determination that (i) the affiliate which it proposes to engage to perform such
services is qualified to do so (considering the prior experience of the
affiliate or the individuals employed thereby); (ii) the terms and conditions of
the agreement pursuant to which such affiliate is to perform services for the
Partnership are no less favorable to the Partnership than could be obtained from
equally-qualified unaffiliated third parties, or are otherwise determined by the
General Partner to be fair and reasonable to the Partnership and the Limited
Partners; and (iii) the maximum period covered by the agreement pursuant to
which such affiliate is to perform services for the Partnership shall not exceed
one year, and such agreement shall be terminable without penalty upon 60 days'
prior written notice by the Partnership. Nothing contained in the preceding
sentence shall prohibit the General Partner from receiving reimbursement from
the Partnership for expenses advanced on behalf of the Partnership (other than
organizational and offering expenses).
No person dealing with the General Partner shall be required to determine
its authority to make any undertaking on behalf of the Partnership or to
determine any fact or circumstance bearing upon the existence of its authority.
9. AUDITS; REPORTS TO LIMITED PARTNERS.
The Partnership's books shall be audited annually by an independent
certified public accounting firm selected by the General Partner in its sole
discretion. The Partnership shall cause each Partner to receive: (a) within 90
days after the close of each fiscal year an annual report containing audited
financial statements (including a statement of income and a statement of
financial condition) of the Partnership for the fiscal year then ended, prepared
in accordance with generally accepted accounting principles and accompanied by a
report of the accounting firm which audited such statements, and such other
information as the CFTC and NFA may from time to time require (such annual
reports will provide a detailed statement of any transactions with the General
Partner or its affiliates and of fees, commissions and any compensation paid or
accrued to the General Partner or its affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed); (b) within 75 days after the close of each fiscal year (but in no
event later than March 15 of each year) such tax information relating to the
Partnership as is necessary for such Partner to complete his federal income tax
return; (c) within 30 days after the close of each calendar month such financial
and other information with respect to the Partnership as the CFTC and NFA from
time to time shall require in monthly reports, together with information
concerning any material change in the brokerage commissions and fees payable by
the Partnership to DWR; and (d) at such times as shall be necessary or advisable
in the General Partner's sole discretion, such other information as the CFTC and
NFA from time to time shall require under the CEAct to be given to participants
in commodity pools.
In addition, if any of the following events occurs, notice of such event,
including a description of the redemption and voting rights of Limited Partners,
as set forth in Sections 10(b) and 15, shall be mailed to each Limited Partner
within seven business days after the occurrence of such event: (a) a decrease in
the Net Asset Value of a Unit as of the close of business on any business day to
50% or less of the Net Asset Value for such Unit as of the end of the end of the
immediately preceding month; (b) any material amendment to this Agreement; (c)
any change in trading advisor or any material change in the management agreement
with the trading advisor; (d) any change in commodity brokers or any material
change in the compensation arrangements with a commodity broker; (e) any change
in general partners or any material change in the compensation arrangements with
a general partner; (f) any change in the Partnership's fiscal year; (g) any
material change in the Partnership's trading policies; or (h) cessation of
futures interests trading by the Partnership. In the case of a notice given in
accordance with clause (a) of the immediately preceding sentence: (i) such
notice shall also advise Limited Partners
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that a "Special Redemption Date," on a date specified in such notice (but in no
event earlier than 15, nor later than 45, days after the mailing of such
notice), will take place as of which Limited Partners may redeem their Units in
the same manner as provided in Section 10(b) for regular Redemption Dates (a
Special Redemption Date may take place on a regular Redemption Date); and (ii)
following the close of business on the date of the 50% decrease giving rise to
such notice, the Partnership shall liquidate all existing positions as promptly
as reasonably practicable and shall suspend all futures interests trading
through the Special Redemption Date. Thereafter, the General Partner shall
determine whether to reinstitute futures interests trading or to terminate the
Partnership. As used herein, "material change in the Partnership's trading
policies" shall mean any change in those trading policies specified in Section
8(c).
The Net Asset Value of a Unit shall be determined daily by the General
Partner and the most recent Net Asset Value calculation shall be promptly
supplied by the General Partner in writing to any Limited Partner after the
General Partner shall have received a written request from such Partner.
In addition, no increase (subject to the limits in the fourth paragraph of
Section 7(e)) in any of the management or incentive fees payable by the
Partnership, or the caps on brokerage commissions, transaction fees and costs,
ordinary administrative expenses, or net excess interest or compensating balance
benefits, all as described in the Prospectus, may take effect until the first
business day following a Redemption Date (as defined in Section 10(b)), PROVIDED
that: (i) notice of such increase is mailed to each Limited Partner at least
five business days prior to the last date on which a "Request for Redemption"
(as defined in Section 10(b)) must be received by the General Partner with
respect to the applicable Redemption Date; (ii) such notice shall describe the
redemption and voting rights of Limited Partners, as set forth in Sections 10(b)
and 15; and (iii) none of such fees or caps may be increased until the first
business day following the first Redemption Date as of which a redemption charge
is no longer payable as set forth in Section 10(b).
10. TRANSFER; REDEMPTION OF UNITS.
(A) TRANSFER. A Limited Partner may transfer or assign his Units only as
provided in this Section 10(a). No transferee or assignee shall become a
substituted Limited Partner unless the General Partner first consents to such
transfer or assignment in writing, which consent shall not be unreasonably
withheld. Any transfer or assignment of Units which is permitted hereunder shall
be effective as of the end of the month in which such transfer or assignment is
made; PROVIDED, HOWEVER, that the Partnership need not recognize any transfer or
assignment until it has received at least 30 days' prior written notice thereof
from the Limited Partner, which notice shall set forth the address and social
security or taxpayer identification number of the transferee or assignee and the
number of Units to be transferred or assigned, and which notice shall be signed
by the Limited Partner. No transfer or assignment of Units will be effective or
recognized by the Partnership if the transferee or assignee, or the transferor
or assignor (if fewer than all Units held by the transferor or assignor are
being transferred or assigned), would, by reason of such transfer or assignment,
acquire Units which do not meet the minimum initial subscription requirements,
as described in the Prospectus; PROVIDED, HOWEVER, that the foregoing
restriction shall not apply to transfers or assignments of Units (i) by the way
of gift or inheritance, (ii) to any members of the Limited Partner's family,
(iii) resulting from divorce, annulment, separation or similar proceedings, or
(iv) to any person who would be deemed an "affiliate" of the Limited Partner as
defined in the first sentence of Section 14(c) [adding new clause (v) as
follows: "(v) if such person is an officer, director or partner, any
partnership, corporation, association, or other legal entity for which such
person acts in any such capacity"]. No transfer or assignment shall be permitted
unless the General Partner is satisfied that (i) such transfer or assignment
would not be in violation of the Act or applicable federal, state, or foreign
securities laws, and (ii) notwithstanding such transfer or assignment, the
Partnership shall continue to be classified as a partnership rather than as an
association taxable as a corporation under the Code. No transfer or assignment
of Units shall be effective or recognized by the Partnership if such transfer or
assignment would result in the termination of the Partnership for federal income
tax purposes, and any attempted transfer or assignment in violation hereof shall
be ineffective to transfer or assign any such Units. Any transferee or assignee
of Units who
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has not been admitted to the Partnership as a substituted Limited Partner shall
not have any of the rights of a Limited Partner, except that such person shall
receive that share of capital and profits, shall have that right of redemption,
and those rights to which his transferor or assignor would otherwise have been
entitled and shall remain subject to the other terms of this Agreement binding
upon Limited Partners. No Limited Partner shall have any right to approve of any
person becoming a substituted Limited Partner. The Limited Partner shall bear
all costs (including any attorneys' and accountants' fees) related to such
transfer or assignment of his Units.
In the event that the General Partner consents to the admission of a
substituted Limited Partner pursuant to this Section 10(a), the General Partner
is hereby authorized to take such actions as may be necessary to reflect such
substitution of a Limited Partner.
(B) REDEMPTION. Except as set forth below and in accordance with the terms
hereof, a Limited Partner (or any assignee thereof) may withdraw all or part of
his unredeemed capital contribution and undistributed profits, if any, by
requiring the Partnership to redeem all or part of his Units at the Net Asset
Value thereof, reduced as hereinafter described (any such withdrawal shall be
referred to herein as a "Redemption"). Redemptions shall be made only in whole
Units or in multiples of $1,000, except that fractions of Units may be redeemed
if a Limited Partner shall be redeeming his entire interest in the Partnership.
Persons who have been Limited Partners for more than six months may redeem
all or part of their Units, regardless of when such Units were purchased, at any
month-end in the manner described herein. Such Units may be subject to
redemption charges as described herein. Persons who have been Limited Partners
for less than six months may first redeem Units effective as of the last day of
the sixth month following the closing at which such person first became a
Limited Partner in the manner described herein. Such Units may be subject to
redemption charges as described herein.
Units redeemed on or prior to the last day of the twelfth month after such
Units were purchased will be subject to a redemption charge equal to 3% of the
Net Asset Value of a Unit on the date of such redemption. Units redeemed after
the last day of the twelfth month and on or prior to the last day of the
eighteenth month after which such Units were purchased will be subject to a
redemption charge equal to 2% of the Net Asset Value of a Unit on the date of
such redemption. Units redeemed after the last day of the eighteenth month and
on or prior to the last day of the twenty-fourth month after which such Units
were purchased will be subject to a redemption charge equal to 1% of the Net
Asset Value of a Unit on the date of such redemption. Units redeemed after the
last day of the twenty-fourth month after which such Units were purchased will
not be subject to a redemption charge. Units redeemed after the last day of the
twenty-fourth month after which such Units were purchased will not be subject to
a redemption charge. The foregoing redemption charges will be paid to DWR.
In addition, a limited partner in any of the other commodity pools for which
the General Partner serves as the general partner and who purchases Units
pursuant to an Exchange (as defined in the Prospectus) will not be subject to
the foregoing redemption charges or restrictions under the circumstances
described below. The number of Units (determined on a per closing basis),
expressed as a percentage of Units purchased, which are not subject to a
redemption charge is determined by dividing (a) the dollar amount received upon
redeeming an interest in such other partnership and used to purchase Units by
(b) the total investment in the Partnership. In addition, redemption charges may
not be imposed for certain large purchasers of Units, or may be otherwise
reduced or waived, as provided in the Prospectus. Redemptions of Units will be
deemed to be in the order in which they are purchased (assuming purchases at
more than one closing), with the Units not subject to a redemption charge being
deemed to be the first Units purchased at a closing.
Redemption of a Limited Partner's Units shall be effective as of the last
day of the first month ending after an irrevocable Request for Redemption in
proper form shall have been received by the General Partner ("Redemption Date");
PROVIDED, that all liabilities, contingent or otherwise, of the Partnership
(except any liability to Partners on account of their capital contributions)
shall have been paid or there shall remain property of the Partnership
sufficient to pay them. As used herein, "Request
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for Redemption" shall mean a letter in the form specified by the General Partner
and received by the General Partner by 5:00 p.m. (New York City time) at least
five business days prior to the date on which such Redemption is to be
effective. A form of Request for Redemption is annexed to this Agreement.
Additional forms of Request for Redemption may be obtained by written request to
the General Partner.
Upon Redemption, a Limited Partner (or any assignee thereof) shall receive
from the Partnership for each Unit redeemed an amount equal to the Net Asset
Value thereof (as defined in Section 7(d)(2)) as of the Redemption Date, less
any redemption charges and any amount owing by such Partner (and his assignee,
if any) to the Partnership pursuant to Section 14(d). If a Redemption is
requested by an assignee, all amounts owed to the Partnership under Section
14(d) by the Partner to whom such Unit was sold, as well as all amounts owed by
all assignees of such Unit, shall be deducted from the Net Asset Value of such
Unit upon Redemption. The General Partner shall endeavor to pay Redemptions
within 10 business days after the Redemption Date, except that under special
circumstances (including, but not limited to, the inability on the part of the
Partnership to liquidate futures interests positions or the default or delay in
payments which shall be due the Partnership from commodity brokers, banks, or
other persons), the Partnership may delay payment to Partners requesting
Redemption of Units of the proportionate part of the Net Asset Value of the
Units represented by the sums which are the subject of such default or delay.
Redemptions will be made by credit to the Limited Partner's customer account
with DWR or by check mailed to the Limited Partner if such account is closed.
The General Partner may, in its absolute discretion, waive any restrictions or
charges applicable to redemptions.
The foregoing terms and conditions in this Section 10(b), other than those
in the second paragraph hereof prohibiting redemptions before the sixth
month-end following the closing at which a person first becomes a Limited
Partner, shall also apply to redemptions effected on "Special Redemption Dates"
held in accordance with Section 9.
The General Partner shall be authorized to execute, file, record, and
publish, on behalf of the Partnership and each Partner, such amendments to this
Agreement and such other documents as shall be necessary or desirable to reflect
any Redemption pursuant to this Section 10(b).
11. SPECIAL POWER OF ATTORNEY.
Each Limited Partner, by the execution of this Agreement, does irrevocably
constitute and appoint the General Partner, with full power of substitution, as
his true and lawful agent and attorney-in-fact, in his name, place, and stead,
(a) to execute, acknowledge, swear to, deliver, file and record in his behalf in
the appropriate public offices, and publish: (i) this Agreement and the
Certificate of Limited Partnership and amendments thereto; (ii) all instruments
that the General Partner deems necessary or appropriate to reflect any
amendment, change, or modification of this Agreement or the Certificate of
Limited Partnership made in accordance with the terms of this Agreement; (iii)
certificates of assumed name; and (iv) all instruments that the General Partner
deems necessary or appropriate to qualify or maintain the qualification of the
Partnership to do business as a foreign limited partnership in other
jurisdictions; and (b) to admit additional Limited Partners and, to the extent
that it is necessary under the laws of any jurisdiction, to execute, deliver and
file amended certificates or agreements of limited partnership or other
instruments to reflect such admission. The Power of Attorney granted herein
shall be irrevocable and deemed to be a power coupled with an interest and shall
survive the incapacity, death, dissolution, liquidation, or termination of a
Limited Partner. Each Limited Partner hereby agrees to be bound by any
representation made by the General Partner and by any successor thereto acting
in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to
execute a special Power of Attorney on a document separate from this Agreement.
In the event of any conflict between this Agreement and any instruments filed by
such attorney-in-fact pursuant to the Power of Attorney granted in this Section
11, this Agreement shall control.
12. WITHDRAWAL OF PARTNERS.
The Partnership shall terminate and be dissolved upon the withdrawal,
insolvency, bankruptcy, dissolution, liquidation, or termination of the General
Partner (unless a new general partner is elected pursuant to Section 15(c) and
such remaining general partner shall have elected to continue the
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business of the Partnership, which any remaining general partner shall have the
right to do). The General Partner shall not withdraw or assign all of its
interest at any time without giving the Limited Partners 120 days' prior written
notice of its intention to withdraw or assign and, if the Limited Partners
thereupon elect a new general partner or partners pursuant to Section 15(c)
which elect to continue the business of the Partnership, the withdrawing General
Partner shall pay all reasonable expenses incurred by the Partnership in
connection with such withdrawal. The General Partner shall be paid the Net Asset
Value of its interests in the Partnership as of the date of such withdrawal.
The death, incompetency, withdrawal, insolvency, bankruptcy, termination,
liquidation, or dissolution of a Limited Partner shall not terminate or dissolve
the Partnership, and such Limited Partner, his estate, custodian, or personal
representative shall have no right to withdraw or value such Limited Partner's
interest in the Partnership except as provided in Section 10. Each Limited
Partner (and any assignee of such Partner's interest) expressly agrees that in
the event of his death, he waives on behalf of himself and his estate and he
directs the legal representative of his estate and any person interested therein
to waive the furnishing of any inventory, accounting, or appraisal of the assets
of the Partnership and any right to an audit or examination of the books of the
Partnership.
13. NO PERSONAL LIABILITY FOR RETURN OF CAPITAL.
Subject to Section 14, neither the General Partner, DWR, nor any "affiliate"
(as defined in Section 14(c)) thereof shall be personally liable for the return
or repayment of all or any portion of the capital or profits of any Partner (or
assignee), it being expressly agreed that any such return of capital or profits
made pursuant to this Agreement shall be made solely from the assets (which
shall not include any right of contribution from the General Partner) of the
Partnership.
14. STANDARD OF LIABILITY; INDEMNIFICATION.
(A) STANDARD OF LIABILITY. The General Partner and its "affiliates" (as
defined in Section 14(c)) shall not be liable to the Partnership, the Limited
Partners, or its or their successors or assigns, for any act, omission, conduct
or activity undertaken by or on behalf of the Partnership which the General
Partner determines, in good faith, to be in the best interests of the
Partnership, unless such act, omission, conduct, or activity constituted
misconduct or negligence.
(B) INDEMNIFICATION BY THE PARTNERSHIP. The Partnership shall indemnify,
defend, and hold harmless the General Partner and its "affiliates" (as defined
in Section 14(c)) from and against any loss, liability, damage, cost, or expense
(including attorneys' and accountants' fees and expenses incurred in defense of
any demands, claims, or lawsuits) actually and reasonably incurred arising from
any act, omission, activity, or conduct undertaken by or on behalf of the
Partnership, including, without limitation, any demands, claims, or lawsuits
initiated by a Limited Partner (or assignee thereof), PROVIDED that (1) the
General Partner has determined, in good faith, that the act, omission, conduct
or activity giving rise to the claim for indemnification was in the best
interests of the Partnership, and (2) the act, omission, activity, or conduct
that was the basis for such loss, liability, damage, cost, or expense was not
the result of misconduct or negligence. Notwithstanding anything to the contrary
contained in the foregoing, neither the General Partner nor any of its
affiliates nor any person acting as a broker-dealer shall be indemnified by the
Partnership for any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless (1) there has been
a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee, or (2) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee, or (3) a court of competent
jurisidiction approves a settlement of the claims against the particular
indemnitee and finds that indemnification of the settlement and related costs
should be made, PROVIDED, with regard to such court approval, the indemnitee
must apprise the court of the position of the SEC, and the positions of the
respective securities administrators of Massachusetts, Missouri, Tennessee
and/or those other states and jurisdictions in which the plaintiffs claim that
they were offered or sold Units, with respect to indemnification for securities
laws violations before seeking court approval for indemnification. Furthermore,
in any action or proceeding brought by a Limited Partner in the right of the
Partnership to which the General
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Partner or any affiliate thereof is a party defendant, any such person shall be
indemnified only to the extent and subject to the conditions specified in the
Act and this Section 14(b). The Partnership shall make advances to the General
Partner or its affiliates hereunder only if: (1) the demand, claim, lawsuit, or
legal action relates to the performance of duties or services by such persons to
the Partnership; (2) such demand, claim, lawsuit, or legal action is not
initiated by a Limited Partner; and (3) such advances are repaid, with interest
at the legal rate under Delaware law, if the person receiving such advance is
ultimately found not to be entitled to indemnification hereunder.
Nothing contained in this Section 14(b) shall increase the liability of any
Limited Partner to the Partnership beyond the amount of his unredeemed capital
contribution, undistributed profits, if any, and any amounts received on
distributions and redemptions, together with interest thereon. All rights to
indemnification and payment of attorneys' and accountants' fees and expenses
shall not be affected by the termination of the Partnership or the withdrawal,
insolvency, or dissolution of the General Partner.
The Partnership shall not incur the cost of that portion of liability
insurance which insures the General Partner and its affiliates for any liability
as to which the General Partner and its affiliates are prohibited from being
indemnified.
(C) AFFILIATE. As used in this Agreement, the term "affiliate" of a person
shall mean: (i) any natural person, partnership, corporation, association, or
other legal entity directly or indirectly owning, controlling, or holding with
power to vote 10% or more of the outstanding voting securities of such person;
(ii) any partnership, corporation, association, or other legal entity 10% or
more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote by such person; (iii) any natural person,
partnership, corporation, association, or other legal entity directly or
indirectly controlling, controlled by, or under common control with, such
person; or (iv) any officer or director of such person. Notwithstanding the
foregoing, "affiliates" for purposes of this Section 14 shall include only those
persons performing services for the Partnership.
(D) INDEMNIFICATION BY PARTNERS. In the event that the Partnership is made
a party to any claim, demand, dispute, or litigation or otherwise incurs any
loss, liability, damage, cost, or expense as a result of, or in connection with,
any Partner's (or assignee's) obligations or liabilities unrelated to the
Partnership's business, such Partner (or assignees cumulatively) shall
indemnify, defend, hold harmless, and reimburse the Partnership for such loss,
liability, damage, cost, and expense to which the Partnership shall become
subject (including attorneys' and accountants' fees and expenses).
15. AMENDMENTS; MEETINGS.
(A) AMENDMENTS WITH CONSENT OF THE GENERAL PARTNER. If, at any time during
the term of the Partnership, the General Partner shall deem it necessary or
desirable to amend this Agreement, such amendment shall be effective only if
embodied in an instrument approved by the General Partner and by Limited
Partners owning more than 50% of the Units then outstanding and if made in
accordance with, and to the extent permissible under, the Act. Any amendment to
this Agreement or actions taken pursuant to this Section 15 that shall have been
approved by the percentage of outstanding Units prescribed above shall be deemed
to have been approved by all Limited Partners. Notwithstanding the foregoing,
the General Partner shall be authorized to amend this Agreement without the
consent of any Limited Partner in order to: (i) change the name of the
Partnership, (ii) clarify any inaccuracy or any ambiguity, or reconcile any
inconsistent provisions herein, (iii) make any amendment to this Agreement,
PROVIDED that such amendment is not adverse to the Limited Partners, (iv) effect
the intent of the allocations proposed herein to the maximum extent possible in
the event of a change in the Code or the interpretations thereof affecting such
allocations, (v) attempt to ensure that the Partnership is not taxed as an
association taxable as a corporation for federal income tax purposes, (vi)
qualify or maintain the qualification of the Partnership as a limited
partnership in any jurisdiction, (vii) delete or add any provision of or to this
Agreement required to be deleted or added by the staff of the SEC, the CFTC, any
other federal agency or any state "Blue Sky" official or similar official or in
order to opt to be governed
A-18
<PAGE>
by any amendment or successor to the Act, or to comply with applicable law,
(viii) make any modification to this Agreement to reflect the admission of
additional or substitute general partners and to reflect any modification to the
Net Worth requirements applicable to the General Partner and any other general
partner, as contemplated by Section 5 hereof, (ix) make any amendment that is
appropriate or necessary, in the opinion of the General Partner, to prevent the
Partnership or the General Partner or its directors, officers or controlling
persons from in any manner being subject to the provisions of the 1940 Act, the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), or "plan
asset" regulations adopted under the Employee Retirement Income Security Act of
1974, as amended, and (x) to make any amendment that is appropriate or
necessary, in the opinion of the General Partner, to qualify the Partnership
under the 1940 Act, and any individuals under the 1940 Act and the Advisers Act,
if the General Partner is informed that doing so is necessary. Any such
supplemental or amendatory agreement shall be adhered to and have the same force
and effect from and after its effective date as if the same had originally been
embodied in, and formed a part of, this Agreement; PROVIDED, HOWEVER, that no
such supplemental or amendatory agreement shall, without the consent of all
Partners affected thereby, change or alter the provisions of this proviso,
reduce the capital account of any Partner, or modify the percentage of profits,
losses, or distributions to which any Partner is entitled.
(B) MEETINGS. Any Limited Partner or his authorized attorney or agent,
upon written request to the General Partner, delivered either in person or by
certified mail, and upon payment of reasonable duplicating and postage costs,
shall be entitled to obtain from the General Partner by mail a list of the names
and addresses of record of all Limited Partners and the number of Units owned by
each.
Upon receipt of a written request, signed by Limited Partners owning at
least 10% of the Units then owned by Limited Partners, that a meeting of the
Partnership be called to vote upon any matter upon which all Limited Partners
may vote pursuant to this Agreement, the General Partner, by written notice to
each Limited Partner of record sent by certified mail or delivered in person
within 15 days after such receipt, shall call a meeting of the Partnership. Such
meeting shall be held at least 30 but not more than 60 days after the mailing of
such notice, and such notice shall specify the date, a reasonable place and
time, and the purpose of such meeting.
(C) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF THE GENERAL PARTNER. At any
meeting of the Limited Partners, upon the affirmative vote (which may be in
person or by proxy) of Limited Partners owning more than 50% of the Units then
owned by Limited Partners, the following actions may be taken without the
consent of the General Partner: (i) this Agreement may be amended in accordance
with, and only to the extent permissible under, the Act; PROVIDED, HOWEVER, that
no such amendment shall, without the consent of all Partners affected thereby,
change or alter the provisions of this proviso, reduce the capital account of
any Partner, or modify the percentage of profits, losses, or distributions to
which any Partner is entitled; (ii) the Partnership may be dissolved; (iii) the
General Partner may be removed and replaced; (iv) a new general partner or
general partners may be elected if the General Partner terminates or liquidates
or elects to withdraw from the Partnership pursuant to Section 12, or becomes
insolvent, bankrupt, or is dissolved; (v) any contracts with the General Partner
or any of its affiliates (as defined in the first sentence of Section 14(c)) may
be terminated without penalty on not less than 60 days' prior written notice;
and (vi) the sale of all or substantially all of the assets of the Partnership
may be approved; PROVIDED, HOWEVER, that no such action shall adversely affect
the status of the Limited Partners as limited partners under the Act or the
classification of the Partnership as a partnership under the federal income tax
laws; and PROVIDED FURTHER, that Units owned by the General Partner and any
affiliate thereof (as defined in Section 14(c)) shall not be voted on the
matters described in clauses (iii) and (v) above. Any action which shall have
been approved by the percentage of outstanding Units prescribed above shall be
deemed to have been approved by all Limited Partners.
(D) ACTION WITHOUT MEETING. Notwithstanding contrary provisions of this
Section 15 covering notices to, meetings of, and voting by Limited Partners, any
action required or permitted to be taken by Limited Partners at a meeting or
otherwise may be taken by Limited Partners without a meeting, without prior
notice, and without a vote if a consent in writing setting forth the action so
taken shall be signed by Limited Partners owning Units having not fewer than the
minimum number of votes that
A-19
<PAGE>
would be necessary to authorize or take such action at a meeting of Limited
Partners at which all outstanding Units shall have been present and voted.
Notice of the taking of action by Limited Partners without a meeting by less
than unanimous written consent of Limited Partners shall be given to those
Limited Partners who shall not have consented in writing within seven business
days after the occurrence thereof.
(E) AMENDMENTS TO CERTIFICATE OF LIMITED PARTNERSHIP. If an amendment to
this Agreement shall be made pursuant to this Section 15, the General Partner
shall be authorized to execute, acknowledge, swear to, deliver, file, record,
and publish, on behalf of the Partnership and each Partner, such amendments to
the Certificate of Limited Partnership as shall be necessary or desirable to
reflect such amendment.
16. ADDITIONAL OFFERINGS.
The General Partner may, in its discretion, make additional public or
private offerings of Units, PROVIDED, that the net proceeds to the Partnership
of any such sales shall in no event be less than the Net Asset Value of a Unit
at the time of sale, and PROVIDED FURTHER, that such proceeds may be less than
said Net Asset Value per Unit if the newly offered Units' participation in the
Partnership's profits and losses is proportionately reduced. Any additional
offering of Units shall be effected in the manner contemplated in Section 6. The
Partnership shall not pay the costs of any such offering or any selling
commissions relating thereto. No Limited Partner shall have any preemptive,
preferential or other rights with respect to the issuance or sale of any
additional Units, except as described in the applicable Prospectus. No Limited
Partner shall have the right to consent to the admission of any additional
Limited Partner. The Partnership may offer different classes of Units for sale
having different economic terms than the Units previously sold to the public,
provided that the issuance of such new class of Units shall in no respect
adversely affect the holders of outstanding Units. There is no maximum aggregate
amount of contributions which may be received by the Partnership.
17. GOVERNING LAW.
THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE, INCLUDING,
SPECIFICALLY, THE ACT (WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES);
PROVIDED, HOWEVER, THAT CAUSES OF ACTION FOR VIOLATIONS OF FEDERAL OR STATE
SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS SECTION 17.
18. MISCELLANEOUS.
(A) PRIORITY AMONG LIMITED PARTNERS. Except as otherwise specifically set
forth in this Agreement, no Limited Partner shall be entitled to any priority or
preference over any other Limited Partner in regard to the affairs of the
Partnership.
(B) NOTICES. All notices under this Agreement (other than Requests for
Redemption, notices of assignment or transfer of Units, and reports by the
General Partner to the Limited Partners) shall be in writing and shall be
effective upon personal delivery or, if sent by registered or certified mail,
postage prepaid, addressed to the last known address of the party to whom such
notice is to be given, upon the deposit of such notice in the United States
mail. Requests for Redemption and notices of assignment or transfer of Units
shall be effective upon timely receipt by the General Partner. Except as
otherwise provided herein, all reports and notices hereunder shall be in writing
and shall be delivered in person or sent by first-class mail to the last known
address of the General Partner or the Limited Partner, as the case may be.
(C) BINDING EFFECT. This Agreement shall inure to the benefit of, and be
binding upon, all of the parties, their successors, assigns as permitted herein,
custodians, estates, heirs, and personal representatives. For purposes of
determining the rights of any Partner or assignee hereunder, the Partnership and
the General Partner may rely upon the Partnership's records as to who are
Partners and assignees, and all Partners and assignees agree that their rights
shall be determined and that they shall be bound thereby, including all rights
that they may have under Section 15.
A-20
<PAGE>
(D) CAPTIONS. Captions in no way define, limit, extend, or describe the
scope of this Agreement nor the effect of any of its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year specified on the first page hereof.
<TABLE>
<S> <C>
ADDITIONAL LIMITED PARTNERS: GENERAL PARTNER:
By: Demeter Management DEMETER MANAGEMENT CORPORATION
Corporation, General By:
Partner, as Authorized Mark J. Hawley,
Agent and Attorney-in-Fact President
By:
Mark J. Hawley,
President
</TABLE>
A-21
<PAGE>
ANNEX A TO LIMITED PARTNERSHIP AGREEMENT
<TABLE>
<S> <C>
MFAD USE ONLY: CLOSING DATE:
</TABLE>
REQUEST FOR REDEMPTION: DEAN WITTER MANAGED FUTURES FUNDS
THIS IRREVOCABLE REQUEST FOR REDEMPTION SHOULD BE DELIVERED TO A LIMITED
PARTNER'S LOCAL DEAN WITTER BRANCH OFFICE AND MUST BE RECEIVED BY THE GENERAL
PARTNER (DEMETER MANAGEMENT CORPORATION, TWO WORLD TRADE CENTER, 62ND FLOOR, NEW
YORK, NY 10048) AT LEAST 5 BUSINESS DAYS PRIOR TO THE LAST DATE OF THE MONTH IN
WHICH THE REDEMPTION IS TO BE EFFECTIVE. THIS FORM CANNOT BE FAXED.
__________________________, 19 _____
[DATE] [PRINT OR TYPE DEAN WITTER ACCOUNT NUMBER]
I hereby request redemption (effective as of the next applicable date as of
which redemption is permitted as set forth in the Limited Partnership Agreement
of the Partnership for which redemption is requested, subject to all terms and
conditions set forth therein) of my capital account in an amount equal to the
respective Net Asset Value, as defined in the Limited Partnership Agreement, of
the following Unit(s) of Limited Partnership Interest ("Units"), less any
amounts specified in the Limited Partnership Agreement.
COMPLETE ONLY ONE SECTION--A, B OR C--PER FORM
SECTION A
SPECTRUM SERIES SHALL ONLY REDEEM UNITS OF LIMITED PARTNERSHIP INTEREST IN A
MINIMUM AMOUNT OF
50 UNITS, UNLESS A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN
SUCH PARTNERSHIP.
<TABLE>
<S> <C> <C>
[DWSB] Spectrum Balanced Entire Units
Interest
[DWSS] Spectrum Strategic Entire Units
Interest
[DWST] Spectrum Technical Entire Units
Interest
</TABLE>
SECTION B
CORNERSTONE FUNDS SHALL ONLY REDEEM $1,000 INCREMENTS OR WHOLE UNITS UNLESS
A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH
PARTNERSHIP.
<TABLE>
<S> <C> <C> <C>
[CFCFB] Cornerstone Fund II Entire Units $ ,000
Interest
[CFCFC] Cornerstone Fund III Entire Units $ ,000
Interest
[CFCFD] Cornerstone Fund IV Entire Units $ ,000
Interest
</TABLE>
SECTION C
OTHER MANAGED FUTURES FUNDS SHALL ONLY REDEEM $1,000 INCREMENTS OR WHOLE UNITS
UNLESS
A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH
PARTNERSHIP.
MARK ONE FUND ONLY (USE ONE FORM PER FUND):
<TABLE>
<S> <C> <C>
[CFF] Columbia Futures Fund [PPF] Principal Plus Fund Entire Interest
[DFF] Diversified Futures Fund [PSF] Portfolio Strategy Fund
[DFF2] Diversified Futures Fund II [SFF] Select Futures Fund Units
[DFF3] Diversified Futures Fund III [WCF] World Currency Fund
[GPP] Global Perspective Portfolio $ ,000
[IAF] International Access Fund
[PGF] Multi-Market Portfolio
</TABLE>
A-22
<PAGE>
SPECIMEN
ACCOUNT INFORMATION AND SIGNATURES
I understand that I may only redeem Units at such times as are specified in the
Limited Partnership Agreement and that, under certain circumstances described
therein, I may be subject to a redemption charge.
I (either in my individual capacity or as an authorized representative of an
entity, if applicable) hereby represent and warrant that I am the true, lawful
and beneficial owner of Units (or fractions thereof) to which this Request for
Redemption relates, with full power and authority to request redemption. The
Units (or fractions thereof) which are the subject of this request are not
subject to any pledge or otherwise encumbered in any fashion. My signature has
been represented by a member of a registered national securities exchange.
SIGNATURE MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
TYPE OR PRINT ALL INFORMATION BELOW
- --------------------------------------------------------------------------------
1. ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
................................................. ..................................................
[Name of Limited Partner] [Dean Witter Account Number]
Address .............................................................................................
[Street]
</TABLE>
...............................................................................
[City] [State or Province] [Zip Code or Postal Code]
- --------------------------------------------------------------------------------
2. SIGNATURE(S) OF INDIVIDUAL PARTNER(S) OR ASSIGNEE[S] INCLUDING IRAS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
X ...................................................... X ......................................................
Date Date
X ...................................................... X ......................................................
Date Date
</TABLE>
We, the undersigned Account Executive and Branch Manager, represent that the
above signature(s) is true and correct.
<TABLE>
<S> <C>
X ................................................ X ................................................
(Account Executive MUST sign and date) (Branch Manager MUST sign and date)
</TABLE>
- --------------------------------------------------------------------------------
3. SIGNATURE OF ENTITY PARTNER OR ASSIGNEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
............................................... By: X ..........................................
(Name of Entity) [Authorized officer, partner, trustee or
custodian. If a corporation, include
certified copy of authorized resolution.]
</TABLE>
We, the undersigned Account Exeuctive and Branch Manager, represent that the
above signature is true and correct.
<TABLE>
<S> <C>
X .............................................. X ..............................................
(Account Executive MUST sign and date) (Branch Manager MUST sign and date)
...............................................
[Branch Telephone Number]
</TABLE>
A-23
<PAGE>
EXHIBIT B
DEAN WITTER PORTFOLIO STRATEGY
FUND L.P.
SUBSCRIPTION AND EXCHANGE AGREEMENT AND
POWER OF ATTORNEY
--------------
UNITS OF LIMITED PARTNERSHIP INTEREST
Subscribers who are redeeming units in another commodity pool for which the
General Partner serves as the general partner and commodity pool operator
("Exchange Subscribers") should follow the instructions below, including those
labeled "For Exchange Suscribers Only."
SUBSCRIPTION INSTRUCTIONS
Any person desiring to subscribe for Units should carefully read and review
the Prospectus dated , 1997 and this Subscription and Exchange Agreement
and Power of Attorney.
NON-EXCHANGE SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND BLANKS ONLY ON
PAGES B-9 AND B-10, AND EXCHANGE SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND
BLANKS ONLY ON PAGES B-11 and B-12, USING BLACK INK, AS FOLLOWS:
<TABLE>
<S> <C> <C>
Item 1 -- Enter Dean Witter Reynolds Inc. ("DWR") Account Number.
-- FOR NON-EXCHANGE SUBSCRIBERS ONLY -- Enter the dollar amount of the
subscription.
-- Enter the Social Security Number or Taxpayer ID Number and check the
appropriate box to indicate the type of entity that is subscribing. In case of
joint ownership, either Social Security Number may be used.
-- Subscriber(s) must (i) if a United States taxable Subscriber(s), review the
representation relating to backup withholding tax under "United States Taxable
Investors Only" on Page B-9 (for Non-Exchange Subscribers) or Page B-11 (for
Exchange Subscribers) or (ii) if a non-United States Subscriber, review the
representation relating to such Subscriber's classification as a non-resident
alien for United States federal income tax purposes under "Non-United States
Investors Only" on Page B-9 (for Non-Exchange Subscribers) or Page B-11 (for
Exchange Subscribers). THE SUBSCRIBER(S) MUST SIGN BELOW TAX REPRESENTATION IN
ITEM 1.
-- Enter the exact name in which the Units are to be held based on ownership type,
and enter residency and other information.
-- Enter taxable year of Subscriber, if other than calendar year.
-- Check box if the Subscriber is a non-resident alien that is a dealer in
commodities or is otherwise engaged in a trade or business within the U.S.
-- If there is a Co-Subscriber, Trustee or Custodian, complete applicable
information.
-- Subscriber purchasing Units as custodian for a minor: (i) if a gift to minor
not made with minor's funds, net worth and annual income representations apply
only to Subscriber or (ii) if not a gift, net worth and annual income
representations apply only to such minor.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C>
-- Subscriber purchasing Units as a trustee or custodian of an employee benefit
plan with an individual beneficiary or of an individual retirement account
("IRA") at the direction of the beneficiary of such plan or IRA: net worth and
annual income representations apply only to the beneficiary of such plan or
account.
</TABLE>
Item 1A FOR EXCHANGE SUBSCRIBERS ONLY
<TABLE>
<S> <C> <C>
-- Enter the symbol and name of the limited partnership from which units are to be
redeemed; specify the quantity to be redeemed.
</TABLE>
Item 2 FOR NON-EXCHANGE SUSCRIBERS ONLY
<TABLE>
<S> <C> <C>
-- Subscriber(s) must execute the Subscription and Exchange Agreement and Power of
Attorney Signature Page (Item 2 Page B-10).
</TABLE>
Item 2 FOR EXCHANGE SUBSCRIBERS ONLY
<TABLE>
<S> <C> <C>
-- Subscriber(s) must execute the Subscription and Exchange Agreement and Power of
Attorney Signature Page (Item 2 Page B-12).
Item 3 -- Account Executive and Branch Manager must complete the required information.
-- This Subscription and Exchange Agreement and Power of Attorney must be mailed
to Dean Witter Reynolds Inc. at Two World Trade Center, 62nd Floor, New York,
New York 10048.
</TABLE>
B-2
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY
FUND L.P.
------------
SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY
Any person subscribing for Units should carefully read and review the
Prospectus. Capitalized terms used below and not defined in this Agreement are
defined (and described in detail) in the Prospectus.
FOR NON-EXCHANGE SUBSCRIBERS ONLY: By executing the Signature Page of this
Subscription and Exchange Agreement and Power of Attorney ("Agreement") for Dean
Witter Portfolio Strategy Fund L.P. (the "Partnership"), the undersigned
Subscriber ("Subscriber") irrevocably subscribes for Units of Limited
Partnership Interest in the Partnership ("Units") at the price per Unit
described in the Partnership's Prospectus dated , 1997 (the
"Prospectus").
FOR EXCHANGE SUBSCRIBERS ONLY: By executing the Signature Page of this
Subscription and Exchange Agreement and Power of Attorney ("Agreement"), the
undersigned Subscriber ("Subscriber") irrevocably redeems the units of limited
partnership interest in the limited partnership indicated on the signature page
of this Agreement and, with the proceeds of such redemption, hereby irrevocably
subscribes for Units of Limited Partnership Interest ("Units") in Dean Witter
Portfolio Strategy Fund L.P. (the "Partnership"), at the price per Unit
described in the Partnership's Prospectus dated , 1997.
NOTWITHSTANDING THE FOREGOING, SUBSCRIBER MAY REVOKE THIS AGREEMENT, AND
RECEIVE A FULL REFUND OF THE SUBSCRIPTION AMOUNT AND ANY ACCRUED INTEREST
THEREON (OR REVOKE THE REDEMPTION OF UNITS IN THE OTHER LIMITED PARTNERSHIP IN
THE CASE OF AN EXCHANGE), WITHIN FIVE BUSINESS DAYS AFTER EXECUTION OF THIS
AGREEMENT OR NO LATER THAN 3:00 P.M., NEW YORK CITY TIME, ON THE DATE OF THE
CLOSING, WHICHEVER COMES FIRST, BY DELIVERING WRITTEN NOTICE TO SUBSCRIBER'S DWR
ACCOUNT EXECUTIVE. If this Agreement is accepted, Subscriber agrees to
contribute Subscriber's subscription to the Partnership and to be bound by the
terms of the Partnership's Limited Partnership Agreement, included as Exhibit A
to the Prospectus (the "Limited Partnership Agreement"). The undersigned
Subscriber hereby authorizes and directs Demeter Management Corporation (the
"General Partner") and DWR to transfer the appropriate amount from the Customer
Account to the Escrow Account. BY EXECUTION OF THE SIGNATURE PAGE ATTACHED
HERETO, SUBSCRIBER SHALL BE DEEMED TO HAVE EXECUTED THIS AGREEMENT AND THE
LIMITED PARTNERSHIP AGREEMENT (INCLUDING THE POWERS OF ATTORNEY HEREIN AND
THEREIN).
- --------------------------------------------------------------------------------
PAYMENT INSTRUCTIONS
- --------------------------------------------------------------------------------
FOR NON-EXCHANGE SUBSCRIBERS ONLY: Payment of this subscription must be
made by charging the Customer Account. In the event that the Subscriber does not
have a Customer Account or does not have sufficient funds in Subscriber's
existing Customer Account, the Subscriber should make appropriate arrangements
with Subscriber's DWR account executive, if any, and if none, should contact
Subscriber's local DWR branch office. Payment must NOT be mailed to the General
Partner at its offices in New York City. Any such payment will not be accepted
by the General Partner and will be returned to the Subscriber for proper
placement with the DWR branch office where Subscriber's Customer Account is
maintained. The undersigned Subscriber hereby authorizes and directs the General
Partner and DWR to transfer the appropriate amount from the Customer Account to
the Escrow Account.
FOR EXCHANGE SUBSCRIBERS ONLY: Payment of this subscription must be made by
applying the proceeds from a redemption of limited partnership units in another
commodity pool for which the General Partner serves as the general partner and
commodity pool operator. Subscriber may only redeem units at such times as are
specified in the applicable limited partnership agreement for such other
commodity pool, and under certain circumstances described therein Subscriber may
be subject to a redemption charge.
B-3
<PAGE>
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
Subscriber (for myself/ourselves, and, if Subscriber is an entity, on behalf
of and with respect to such entity and its shareholders, partners, or
beneficiaries) hereby represents and warrants to the General Partner and the
Partnership as follows:
(1) Subscriber has received a copy of the Prospectus, which includes the
Limited Partnership Agreement.
(2) Subscriber is of legal age to execute this Agreement and is legally
competent to do so.
(3) Subscriber has either: (a) net worth of at least $75,000 (exclusive
of home, furnishings, and automobiles); or (b) net worth of at least $30,000
(exclusive of home, furnishings, and automobiles) and annual gross income of
at least $30,000. However, if Subscriber is a resident and/ or subject to
regulation by one of the states which imposes more restrictive suitability
requirements than the foregoing, or requires a higher minimum investment, as
set forth below under the caption "State Suitability Requirements" (or in
the special Supplement to the Prospectus for residents of the state in which
Subscriber resides), Subscriber's net worth and/or income and investment
satisfies the requirements of such state. (If Units are being purchased by
spouses as joint owners, their joint net worth and annual income may be used
to satisfy applicable state suitability requirements.) Subscriber agrees to
provide any additional documentation requested by the General Partner, as
may be required by the securities administrators of certain states to
confirm that Subscriber meets the applicable minimum financial suitability
standards to invest in the Partnership.
(4) The address set forth on the Signature Page is Subscriber's true and
correct residence and Subscriber has no present intention of becoming a
resident of any other state or country. All the information that is provided
on the Signature Page regarding Subscriber is correct and complete as of the
date of this Agreement, and, if there should be any material change in such
information prior to Subscriber's admission as a Limited Partner, Subscriber
will immediately furnish such revised or corrected information to the
General Partner.
(5) If Subscriber is an employee benefit plan, to the best of
Subscriber's knowledge, neither the General Partner, DWR, the Trading
Advisor, nor any of their respective affiliates either: (a) has investment
discretion with respect to the investment of Subscriber's plan assets; (b)
has authority or responsibility to or regularly gives investment advice with
respect to such plan assets for a fee and pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such plan assets and that such advice will be
based on the particular investment needs of the plan; or (c) is an employer
maintaining or contributing to such plan. For purposes hereof, an "employee
benefit plan" shall include plans and accounts of various types (including
their related trusts) which provide for the accumulation of a portion of an
individual's earnings or compensation as well as investment income earned
thereon free from federal income tax until such time as funds are
distributed from the plan, and include corporate "pension" and
profit-sharing plans, "simplified employee pension plans," "Keogh" plans for
self-employed individuals, and IRAs.
(6) Unless (7) or (8) below is applicable, Subscriber's subscription is
made with Subscriber's funds for Subscriber's own account and not as
trustee, custodian, or nominee for another.
(7) The subscription, if made as custodian for a minor, is a gift
Subscriber has made to such minor and is not made with such minor's funds
or, if not a gift, the representations as to net worth and annual income set
forth herein apply only to such minor.
(8) If Subscriber is subscribing as a trustee or custodian of an
employee benefit plan or of an IRA at the direction of the beneficiary of
the plan or IRA, the representations set forth above apply only to the
beneficiary of such plan or IRA.
B-4
<PAGE>
(9) If Subscriber is subscribing in a representative capacity,
Subscriber has full power and authority to purchase the Units and enter into
and be bound by this Agreement on behalf of the entity for which Subscriber
is purchasing the Units, and such entity has full right and power to
purchase such Units and enter into and be bound by this Agreement and become
a Limited Partner pursuant to the Limited Partnership Agreement.
ADDITIONAL REPRESENTATION AND WARRANTY FOR EXCHANGE SUBSCRIBERS ONLY:
(10) Subscriber is the true, lawful, and beneficial owner of the units
of limited partnership interest (or fractions thereof) to be redeemed
pursuant to this Agreement, with full power and authority to request
redemption and a subsequent purchase of Units. The units of limited
partnership interest (or fraction thereof) which are the subject of this
redemption request are not subject to any pledge or otherwise encumbered in
any fashion.
By making the representations and warranties set forth above, Subscribers
should be aware that they have not waived any rights of action which they may
have under applicable federal or state securities laws. Federal and state
securities laws provide that any such waiver would be unenforceable. Subscribers
should be aware, however, that the representations and warranties set forth
above may be asserted in the defense of the Partnership, the General Partner,
the Trading Advisor, DWR, or others in any subsequent litigation or other
proceeding.
- --------------------------------------------------------------------------------
STATE SUITABILITY REQUIREMENTS
- --------------------------------------------------------------------------------
Except as indicated below, investors in the Partnership must have a net
worth (exclusive of home, furnishings, and automobiles) of at least $75,000 or,
failing that standard, have a net worth (same exclusions) of at least $30,000
and an annual gross income of at least $30,000, and must make a minimum
aggregate investment of $5,000, or $2,000 in the case of IRAs, or, in the case
of an Exchange, the lesser of (i) $5,000 ($2,000 in the case of an IRA), (ii)
the proceeds from the redemption of five units (two units in the case of an IRA)
from commodity pools other than the Spectrum Series, (iii) the proceeds from the
redemption of 500 units (200 units in the case of an IRA) from one, or any
combination, of the Spectrum Series of commodity pools, or (iv) the proceeds
from the redemption of all of the Subscriber's units of limited partnership
interest in any other commodity pool for which the General Partner serves as
general partner and commodity pool operator. However, the states listed below
(or, in certain cases, in special Supplements to the Prospectus attached
thereto) have more restrictive suitability or minimum investment requirements
for Subscribers residing therein. Please read the following list to make sure
that Subscriber meets the suitability and/or investment requirements for the
state in which Subscriber resides. (As used below, "NW" means net worth
exclusive of home, furnishings, and automobiles; "AI" means annual gross income;
"TI" means annual taxable income for federal income tax purposes; "Existing LPs"
means Subscribers who first became Limited Partners of the Partnership prior to
, 1997; and "New LPs" means Subscribers (including those effecting
Exchanges) who are not Existing LPs.)
B-5
<PAGE>
[TO BE PROVIDED]
B-6
<PAGE>
- --------------------------------------------------------------------------------
SIGNIFICANT DISCLOSURES
- --------------------------------------------------------------------------------
Subscriber should read the Prospectus in its entirety before completing this
Agreement and subscribing for Units, and should carefully consider the
information contained therein as well as the following information (which is set
forth in detail in the Prospectus) concerning an investment in the Partnership:
(1) The General Partner and DWR, the commodity broker, are each wholly
owned subsidiaries of Dean Witter, Discover & Co., and conflicts of interest
therefore exist. The principal business address of the General Partner is
Two World Trade Center, 62nd Floor, New York, New York 10048.
(2) DWR will receive substantial commodity brokerage commissions and
certain transaction fees and costs from the Partnership, and will also
realize the benefits of excess interest earned on the Partnership's funds
and compensating balance benefits from deposits of the Partnership's funds,
subject to certain limitations, as described in the Prospectus. A Limited
Partner will consent to the execution and delivery by the General Partner on
behalf of the Partnership of the Customer Agreement with DWR, and to the
payment to DWR of such commissions, fees, costs, and benefits.
(3) The performance information in the Prospectus should be read only in
conjunction with the textual description and notes thereto, and such data
should not be interpreted to mean that the Partnership will have similar
results or will realize any profits whatsoever. A Limited Partner will be
deemed to have consented to the execution and delivery by the General
Partner on behalf of the Partnership of the Management Agreement with the
Trading Advisor (as described in the Prospectus), and with such other
trading advisors as the General Partner may retain from time to time.
(4) Units cannot be transferred or assigned except as set forth in the
Limited Partnership Agreement. Units may be redeemed at the option of a
Limited Partner as of, but not before, the sixth month end following the
Closing. Thereafter, Units may be redeemed as of the end of any month.
However, any Units redeemed at the end of the sixth or at or prior to the
end of the twelfth, eighteenth, or twenty-fourth month following the Closing
will be assessed a redemption charge equal to 3%, 2% or 1%, respectively, of
the Net Asset Value of a Unit on the date of such redemption. The foregoing
charges will be paid to DWR. A limited partner in any of the other commodity
pools for which the General Partner serves as the general partner and
commodity pool operator who redeemed all or a portion of his interest in one
of such other partnerships on or after June 30, 1996, and purchases Units
will not be subject to the foregoing redemption charges or restrictions
under the circumstances described below. The number of Units, expressed as a
percentage of Units purchased, which are not subject to a redemption charge
is determined by dividing (a) the dollar amount received upon redeeming an
interest in such other partnership and used to purchase Units by (b) the
total investment in the Partnership. Subscribers who purchase $500,000 or
more of Units will not be subject to the redemption charges described above.
Similarly, investors who are Limited Partners in the Partnership immediately
prior to the Closing will not be subject to the minimum six-month holding
period or the redemption charges, as described above, with respect to Units
purchased during the Offering Period. Units may only be redeemed upon 5
business days' written notice to the General Partner prior to the effective
date of a redemption, which will be the last day of a calendar month.
(5) All subscriptions are subject to acceptance or rejection by the
General Partner in whole or in part for any reason and are irrevocable by
Subscribers, subject to the limited revocation right described on page 3 of
this Agreement.
- --------------------------------------------------------------------------------
ACCEPTANCE OF THE LIMITED PARTNERSHIP AGREEMENT
- --------------------------------------------------------------------------------
Subscriber hereby agrees that as of the date that Subscriber's name is
entered on the books of the Partnership, Subscriber shall become a Limited
Partner of the Partnership. Subscriber hereby agrees to each and every term of
the Limited Partnership Agreement as if Subscriber's signature were subscribed
B-7
<PAGE>
thereto. Subscriber further agrees that DWR may receipt on Subscriber's behalf
for the Units purchased by Subscriber hereunder upon the issuance of such Units
by the Partnership (although no certificate evidencing Unit(s) will be issued to
Subscriber).
- --------------------------------------------------------------------------------
POWER OF ATTORNEY AND GOVERNING LAW
- --------------------------------------------------------------------------------
Subscriber hereby irrevocably constitutes and appoints Demeter Management
Corporation, the General Partner of the Partnership, as Subscriber's true and
lawful Attorney-in-Fact, with full power of substitution, in Subscriber's name,
place, and stead, to do all things necessary to admit Subscriber as a Limited
Partner of the Partnership and to admit others as additional or substituted
Limited Partners to the Partnership so long as such admission is in accordance
with the terms of the Limited Partnership Agreement or any amendment thereto, to
file, prosecute, defend, settle, or compromise any and all actions at law or
suits in equity for or on behalf of the Partnership in connection with any
claim, demand, or liability asserted or threatened by or against the
Partnership, and to execute, acknowledge, swear to, deliver, file, and record on
Subscriber's behalf and as necessary in the appropriate public offices, and
publish: (a) the Limited Partnership Agreement and the Certificate of Limited
Partnership and all amendments thereto permitted by the terms thereof; (b) all
instruments that the General Partner deems necessary or appropriate to reflect
any amendment, change, or modification of the Limited Partnership Agreement or
the Certificate of Limited Partnership made in accordance with the terms of the
Limited Partnership Agreement; (c) certificates of assumed name; and (d) all
instruments that the General Partner deems necessary or appropriate to qualify
or maintain the qualification of the Partnership to do business as a foreign
limited partnership in other jurisdictions. Subscriber agrees to be bound by any
representation made by the General Partner or any successor thereto acting in
good faith pursuant to this Power of Attorney.
The Power of Attorney granted hereby shall be deemed to be coupled with an
interest and shall be irrevocable and survive the death, incapacity,
dissolution, liquidation, or termination of the Subscriber.
THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK; PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT BE DEEMED A WAIVER OF ANY
RIGHTS OF ACTION SUBSCRIBER MAY HAVE UNDER APPLICABLE FEDERAL OR STATE
SECURITIES LAW.
- --------------------------------------------------------------------------------
RECEIPT OF DOCUMENTATION
- --------------------------------------------------------------------------------
The regulations of the Commodity Futures Trading Commission require that the
undersigned Subscriber be given a copy of the Prospectus (which includes the
most current annual report for the Partnership), as well as certain additional
documentation consisting of: (a) a supplement to the Prospectus, which must be
given to the undersigned if the Prospectus is dated more than nine months prior
to the date that the undersigned first receives the Prospectus, and (b) the most
current monthly account statement for the Partnership, which must be distributed
within 30 calendar days after the end of each month. The undersigned hereby
acknowledges receipt of the Prospectus and the additional documentation referred
to above, if any.
B-8
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST
SIGNATURE PAGE FOR NON-EXCHANGE SUBSCRIBERS ONLY
PLEASE PRINT OR TYPE. USE BLACK INK ONLY.
This request for subscription should be delivered to the local Dean Witter
Branch Office and must be received by the General Partner at least five business
days prior to the Closing.
The Subscriber named below, by execution and delivery of this Signature Page
and by payment of the purchase price for Units of
Limited Partnership Interest ("Units") in Dean Witter Portfolio Strategy Fund
L.P. (the "Partnership"), hereby subscribes for Units at the Closing, at a price
equal to 100% of the Net Asset Value as of the close of business on the last day
of the month immediately preceding such Closing, all as described in the
Prospectus. Unless otherwise provided under "State Suitability Requirements" or
in a Supplement attached to the Prospectus, the minimum investment in the
Partnership is $5,000 or $2,000 in the case of IRAs. Existing Limited Partners
who desire to make an additional investment in the Partnership may subscribe for
Units at the Closing with a minimum investment of $1,000.
BY SUCH EXECUTION AND PAYMENT, THE SUBSCRIBER ACKNOWLEDGES RECEIPT OF THE
PROSPECTUS OF THE PARTNERSHIP DATED , 1997, INCLUDING THE LIMITED
PARTNERSHIP AGREEMENT, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS
BEING SUBSCRIBED FOR HEREBY, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIP.
- --------------------------------------------------------------------------------
ITEM 1 -- SUBSCRIBER (SUBSCRIBER MUST SIGN BELOW TAX REPRESENTATION)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C><C> <C>
DWR ACCOUNT NO. P S F $ .00
</TABLE>
<TABLE>
<CAPTION>
- AMOUNT OF SUBSCRIPTION
<S> <C> <C> <C> <C>
TAXABLE INVESTORS NON-TAXABLE INVESTORS
/ / / / / / -- / / / / -- / / / / / / / / OR / / / / -- / / / / / / / / / / / / / OR / / / / / / / / / / / / / / / / / / / / / /
Social Security Number of: (check one) Taxpayer ID Number for: (check one) Soc. Sec. #/Taxpayer ID # for: (check
one)
/ / Individual Ownership / /Trust other than Grantor or / /IRA (the DWR Branch Manager must
Revocable Trust sign below for IRA accounts)
/ /Joint Tenants with Rights of
Survivorship / / Estate / /Employee Benefit Plan
(Participant
/ / Tenants in Common / /UGMA/UTMA (Minor) Directed)
/ / Community Property / / Partnership / / Defined Benefit Plan (Other)
/ /Grantor or other Revocable Trust / / Corporation / / Other (specify)
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- --
</TABLE>
<TABLE>
<S> <C> <C>
UNITED STATES TAXABLE INVESTORS ONLY: OR NON-UNITED STATES INVESTORS ONLY:
/ / Check box if Subscriber is subject to backup Under penalties of perjury, by signature below, the
withholding under the provisions of Section Subscriber certifies that such Subscriber is NOT
3406(a)(1)(C) of the Internal Revenue Code. (a) a citizen or resident of the United
If Subscriber's taxable year is other than the calendar States;
year, indicate the date on which (b) or, a United States corporation, partnership,
Subscriber's taxable year estate or trust.
ends ...............................................
Under penalties of perjury, by signing below, I
certify that the Social Security Number (or Taxpayer
ID Number) above to be the true, correct and complete
Social Security Number (or Taxpayer ID Number) and
that all the information above is true, correct and
complete.
</TABLE>
<TABLE>
<S> <C> <C> <C>
X ............................................................................................... ............... ..........
(Signature of Subscriber or Officer, Partner or Trustee [or Branch Manager in the case of IRAs]) Date
If Subscriber is an Type or Print Name of Entity: .........................................................
Entity:
Name: ................................................................ Date: .........
Title: ................................................................................
Full Name of Account..............................................................................................
(Subscriber's Name or Name of Trust or Custodial Account--do not use initials)
Subscriber is a resident of ........................ and a citizen of ........................
(name of country) (name of country)
Street Address ...................................................................................................
(MUST be residence address--P.O. Box alone not acceptable)
City ................... State ............. Zip Code ............. Tel. No. ( ............. ) ............
</TABLE>
/ / Check here if Subscriber is a non-resident alien individual, foreign
corporation, foreign partnership, foreign trust or foreign estate
that is a dealer in commodities or otherwise engaged in a trade or business
within the U.S.A. to which income, gain or loss from the
Partnership would be treated as effectively connected. (Subscriber must complete
Form W-8 which may be obtained from DWR AE.)
B-9
<PAGE>
COMPLETE, IF APPLICABLE (MUST BE COMPLETED IF THERE IS A CO-SUBSCRIBER, TRUSTEE
OR CUSTODIAN):
<TABLE>
<S> <C>
Name .................................................. Telephone Number ( ................. ) ................
The person or entity above is a/an (check one)
</TABLE>
<TABLE>
<S> <C> <C>
/ / Co-Subscriber / / Trustee or Custodian / / Authorized Person, if an
Institutional Trustee
</TABLE>
Street Address .................................................................
(P. O. Box alone not acceptable)
<TABLE>
<S> <C>
City ....................................................... State ..................... Zip Code ....................
Co-Subscriber, Trustee or Custodian is a resident of ....... and a citizen of ...........................................
Minor (if not a gift) is a resident of ..................... and a citizen of ...........................................
</TABLE>
- --------------------------------------------------------------------------------
ITEM 2 -- SIGNATURE(S)--SUBSCRIBER(S) MUST SIGN UNDER TAX REPRESENTATION ON
PRECEDING PAGE AND BELOW
- --------------------------------------------------------------------------------
(INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE
BENEFIT PLAN OR IRA SUBSCRIPTION)
If this subscription is for a joint or community property account, the
statements, representations, and warranties set forth in this Subscription and
Exchange Agreement and Power of Attorney shall be deemed to have been made by
each owner of the account.
* If the Units will be owned by joint owners, tenants in common, or as
community property, signatures of all owners are required.
* In the case of a participant-directed employee benefit plan or IRA, the
beneficiary must sign immediately below and the trustee or custodian must
sign below under "Entity Subscription".
<TABLE>
<S> <C> <C> <C>
X ............................................................. X .............................................................
(Signature of Subscriber) Date (Signature of Co-Subscriber) Date
</TABLE>
(ENTITY SUBSCRIPTION)
ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAS)
IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR DWR THAT THIS
INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY
ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR
PLAN.
The undersigned corporate officer, partner or trustee hereby certifies and
warrants that s/he has full power and authority from or on behalf of the entity
named below and its shareholders, partners, or beneficiaries to complete,
execute and deliver this Subscription and Exchange Agreement and Power of
Attorney on their behalf and to make the statements, representations, and
warranties made herein on their behalf, and that investment in the Partnership
is authorized under applicable law and the governing documents of the entity,
has been affirmatively authorized by the governing board or body, if any, of the
entity, and is legally permissible.
<TABLE>
<S> <C>
............................. X ...........................
(Type or Print Name of Entity) (Signature) Date
Print Name .................. Title .......................
</TABLE>
- --------------------------------------------------------------------------------
ITEM 3 -- BRANCH MANAGER AND ACCOUNT EXECUTIVE USE ONLY (COMPLETED IN FULL AND
IN INK)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
THE UNDERSIGNED ACCOUNT EXECUTIVE HEREBY CERTIFIES THAT: THE ACCOUNT EXECUTIVE MUST SIGN BELOW IN ORDER TO
(1) s/he has informed the Subscriber about the liquidity SUBSTANTIATE COMPLIANCE WITH NASD CONDUCT RULE 2810.
and marketability of the Units as set forth in the X ........................................................
Prospectus; Account Executive's Signature
(2) based on information obtained from the Subscriber ..........................................................
concerning this Subscriber's investment objectives, Type or Print Full Name of Account Executive
other investments, financial situation, needs and any Telephone
other relevant information, that s/he reasonably Number ( ............. ) ...................................
believes that: THE UNDERSIGNED BRANCH MANAGER HEREBY CERTIFIES THAT:
(a) such Subscriber is or will be in a financial position (1) the above signature(s) is/are true and correct.
appropriate to enable such Subscriber to realize the (2) the above client(s) is/are suitable.
benefits of the Partnership as described in the X .......................................................
Prospectus; Branch Manager's Signature
(b) such Subscriber has a net worth sufficient to sustain .........................................................
the risk inherent in the Partnership (including loss Type or Print Full Name of Branch Manager
of investment and lack of liquidity); and
(c) the Partnership is otherwise a suitable investment
for such Subscriber; and
</TABLE>
B-10
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
SIGNATURE PAGE FOR EXCHANGE SUBSCRIBERS ONLY
PLEASE PRINT OR TYPE. USE BLACK INK ONLY.
This request for redemption and exchange should be delivered to the local
Dean Witter Branch Office and must be received by the General Partner at least
five business days prior to the Closing.
The Subscriber named below, by execution and delivery of this Signature
Page, hereby redeems the units of limited partnership interest of the limited
partnership named in Item 1A below and, by application of the proceeds of such
redemption to the payment of the purchase price for Units of Limited Partnership
Interest ("Units") in Dean Witter Portfolio Strategy Fund L.P. ("PSF" or the
"Partnership"), hereby subscribes for Units at the Closing, at a price equal to
100% of the Net Asset Value as of the close of business on the last day of the
month immediately preceding such Closing, all as described in the Prospectus.
BY SUCH EXECUTION AND PAYMENT, THE SUBSCRIBER ACKNOWLEDGES RECEIPT OF THE
PROSPECTUS OF THE PARTNERSHIP DATED , 1997, INCLUDING THE LIMITED
PARTNERSHIP AGREEMENT, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS
BEING SUBSCRIBED FOR HEREBY, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIP.
<TABLE>
<S> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
ITEM 1 -- SUBSCRIBER (SUBSCRIBER MUST SIGN BELOW TAX REPRESENTATION)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DWR ACCOUNT NO.
</TABLE>
-
- --------------------------------------------------------------------------------
ITEM 1A -- REDEMPTION AND SUBSCRIPTION
- --------------------------------------------------------------------------------
The price per Unit of the Partnership equals 100% of the Net Asset Value of a
Unit as of the close of business on the last day of the month immediately
preceding the applicable Closing.
ENTER SYMBOL FOR FUND BEING REDEEMED BELOW
<TABLE>
<S> <C>
SPECIFY QUANTITY OF UNITS TO BE REDEEMED (CHECK BOX AND INSERT NUMBER,
TO BE REDEEMED IF APPLICABLE)
</TABLE>
/ / / / / / / / / / / / Entire Interest OR / / Whole
Units
- -
- ---------------
- ---------------
- - to
- - P S F
- -
- ----------
- ----------
PLEASE PRINT NAME OF FUND BEING REDEEMED ON LINE AT RIGHT: ....................
The Subscriber hereby authorizes Demeter Management Corporation to redeem the
above quantity of units of limited partnership interest set forth opposite the
name of the partnership identified above at the Net Asset Value thereof, as
defined in the limited partnership agreement of such partnership, less any
redemption charges, and to utilize the net proceeds thereof to purchase Units in
PSF as indicated. With respect to PSF, an exchange may only be made in whole
units, in an amount equal to the lesser of (i) $5,000 ($2,000 in the case of an
IRA), and (ii) the proceeds from the redemption of a minimum of 5 units in a
regular account for any partnership other than those in the Dean Witter Spectrum
Series ("Spectrum") (500 units in the case of Spectrum), or 2 units in an IRA
for any partnership other than those in Spectrum (200 units in the case of
Spectrum), unless a limited partner is liquidating his entire interest in a
partnership.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TAXABLE INVESTORS NON-TAXABLE INVESTORS
/ / / / / / -- / / / / -- / / / / / / / / OR / / / / -- / / / / / / / / / / / / / OR / / / / / / / / / / / / / / / / / / / / / /
Social Security Number of: (check one) Taxpayer ID Number for: (check one) Soc. Sec. #/Taxpayer ID # for: (check
one)
/ / Individual Ownership / / Trust other than Grantor or / / IRA (the DWR Branch Manager
Revocable Trust must sign below for IRA
/ / Joint Tenants with Rights of accounts)
Survivorship / / Estate
/ / Employee Benefit Plan
/ / Tenants in Common / / UGMA/UTMA (Minor) (Participant-
Directed)
/ / Community Property / / Partnership
/ / Defined Benefit Plan (Other)
/ / Grantor or other Revocable / / Corporation
Trust / / Other (specify)
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- --
</TABLE>
<TABLE>
<S> <C> <C>
UNITED STATES TAXABLE INVESTORS ONLY: OR NON-UNITED STATES INVESTORS ONLY:
/ / Check box if Subscriber is subject to backup Under penalties of perjury, by signature below, the
withholding under the provisions of Section Subscriber certifies that such Subscriber is NOT
3406(a)(1)(C) of the Internal Revenue Code. (a) a citizen or resident of the United
If Subscriber's taxable year is other than the calendar States;
year, indicate the date on which (b) or, a United States corporation, partnership,
Subscriber's taxable year estate or trust.
ends ...............................................
Under penalties of perjury, by signing below, I
certify that the Social Security Number (or Taxpayer
ID Number) above to be the true, correct and complete
Social Security Number (or Taxpayer ID Number) and
that all the information above is true, correct and
complete.
</TABLE>
<TABLE>
<S> <C> <C>
X ............................................................................................................................
(Signature of Subscriber or Officer, Partner or Trustee [or Branch Manager in the case of IRAs]) Date
If Subscriber is an Entity: Type or Print Name of Entity: ...........................................................
Name: ...................................... Date: ......................................
Title: ..................................................................................
</TABLE>
B-11
<PAGE>
<TABLE>
<S> <C>
Full Name of Account ....................................................................................................
(Subscriber's Name or Name of Trust or Custodial Account--do not use initials)
Subscriber is a resident of ........................................... and a citizen of ...........................................
(name of country) (name of country)
Street Address ....................................................................................................................
(MUST be residence address -- P. O. Box alone not acceptable)
</TABLE>
<TABLE>
<S> <C> <C> <C>
City........................................................ State.......... Zip Code....... Tel. No. ( ....... ) ......
</TABLE>
/ / Check here if Subscriber is a non-resident alien individual, foreign
corporation, foreign partnership, foreign trust or foreign estate that is a
dealer in commodities or otherwise engaged in a trade or business within the
U.S.A. to which income, gain or loss from the Partnership would be treated as
effectively connected. (Subscriber must complete Form W-8 which may be obtained
from DWR AE.)
COMPLETE, IF APPLICABLE (MUST BE COMPLETED IF THERE IS A CO-SUBSCRIBER, TRUSTEE
OR CUSTODIAN):
Name ............... Telephone Number ( ......... ) ..........................
The person or entity above is a/an (check
one)
<TABLE>
<S> <C> <C>
/ / Authorized Person, if an
/ / Co- Subscriber / / Trustee or Custodian Institutional Trustee
</TABLE>
Street Address ................................................................
(P. O. Box alone not acceptable)
<TABLE>
<S> <C> <C>
City................................................................................................ State.......... Zip Code.......
</TABLE>
Co-Subscriber, Trustee or Custodian
is a resident of................... and a citizen of...................
Minor (if not a gift) is a resident
of................................. and a citizen of...................
- --------------------------------------------------------------------------------
ITEM 2 -- SIGNATURE(S)--SUBSCRIBER(S) MUST SIGN UNDER TAX REPRESENTATION ON
PRECEDING PAGE AND BELOW
- --------------------------------------------------------------------------------
(INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE
BENEFIT PLAN OR IRA SUBSCRIPTION)
If this subscription is for a joint or community property account, the
statements, representations, and warranties set forth in this Subscription and
Exchange Agreement and Power of Attorney shall be deemed to have been made by
each owner of the account.
* If the Units will be owned by joint owners, tenants in common, or as
community property, signatures of all owners are required.
* In the case of a participant-directed employee benefit plan or IRA, the
beneficiary must sign immediately below and the trustee or custodian must
sign below under "Entity Subscription".
<TABLE>
<S> <C> <C> <C>
X .......................................... X ..............................................
. .................. . ..................
(Signature of Subscriber) Date (Signature of Co- Subscriber) Date
</TABLE>
(ENTITY SUBSCRIPTION)
ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING
IRAS) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR DWR THAT THIS
INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY
ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR
PLAN.
The undersigned corporate officer, partner or trustee hereby certifies and
warrants that s/he has full power and authority from or on behalf of the entity
named below and its shareholders, partners, or beneficiaries to complete,
execute and deliver this Subscription and Exchange Agreement and Power of
Attorney on their behalf and to make the statements, representations, and
warranties made herein on their behalf, and that investment in the Partnership
is authorized under applicable law and the governing documents of the entity,
has been affirmatively authorized by the governing board or body, if any of the
entity, and is legally permissible.
<TABLE>
<S> <C>
...................................................... X ....................................................
............. .....................
(Type or Print Name of Entity) (Signature) Date
Print Name ........................................ Title ................................................
............ ......................
</TABLE>
B-12
<PAGE>
- --------------------------------------------------------------------------------
ITEM 3 -- BRANCH MANAGER AND ACCOUNT EXECUTIVE USE ONLY (COMPLETED IN FULL AND
IN INK)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The undersigned Account Executive hereby THE ACCOUNT EXECUTIVE MUST SIGN BELOW IN
certifies that: ORDER TO SUBSTANTIATE COMPLIANCE WITH NASD
(1) the above signature(s) are true and CONDUCT RULE 2810.
correct;
(2) s/he has informed the Subscriber about X .................................................
the liquidity and marketability of the ......................
Units as set forth in the Prospectus; Account Executive's
(3) based on information obtained from the Signature
Subscriber concerning this Subscriber's
investment objectives, other ...................................................
investments, financial situation, needs ......................
and any other relevant information, Type or Print Full Name of Account
that s/he reasonably believes that: Executive
(a) such Subscriber is or will be in a Telephone
financial position appropriate to Number ( ............. ) ............
enable such Subscriber to realize the .......................
benefits of the Partnership as THE UNDERSIGNED BRANCH MANAGER HEREBY
described in the Prospectus; CERTIFIES THAT:
(b) such Subscriber has a net worth (1) the above signature(s) is/are true and
sufficient to sustain the risk inherent correct.
in the Partnership (including loss of (2) the above client(s) is/are suitable.
investment and lack of liquidity); and X .......................................
(c) the Partnership is otherwise a Branch Manager's Signature
suitable investment for such .........................................
Subscriber; and Type or Print Full Name of Branch Manager
(4) the Subscriber received the Prospectus
at least five business days prior to
the Closing.
</TABLE>
B-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 33,682
NASD filing fee....................................................... 11,615
Printing and engraving................................................ 350,000*
Legal fees and expenses excluding Blue Sky legal fees................. 275,000*
Accounting fees and expenses.......................................... 50,000*
Escrow Agent fees..................................................... 3,000*
Blue Sky fees and expenses including Blue Sky legal fees.............. 75,000*
Miscellaneous......................................................... 101,703*
-----------
Total............................................................... $ 900,000*
-----------
-----------
</TABLE>
- ------------------------
*Estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14 of the Limited Partnership Agreement (a form of which is annexed
to the Prospectus as Exhibit A) provides for indemnification of the General
Partner and its affiliates (as such term is defined therein) by the Partnership
for any loss, liability, damage, cost or expense arising for conduct undertaken
by or on behalf of the Partnership that is determined by the General Partner in
good faith to be in the best interests of the Partnership and was not the result
of misconduct or negligence. The Limited Partnership Agreement also provides for
indemnification of the Partnership by its partners for any loss, liability,
damage, cost and expense incurred in connection with any partner's obligations
or liabilities unrelated to the Partnership's business. Section 12 of the
Selling Agreement provides for indemnification of DWR, the Partnership and the
General Partner and their directors, officers, employees and agents and their
respective successors and assigns by the Trading Advisor for any loss, claim,
damage, liability, cost, and expense incurred for misleading or untrue
statements and material omissions regarding the Trading Advisor, in the
Registration Statement or Prospectus (as defined therein). Section 12 of the
Selling Agreement also provides for the indemnification of DWR, the General
Partner and their affiliates by the Partnership for any loss, liability, damage,
cost, or expense for any act or omission taken on behalf of the Partnership
provided that DWR or the General Partner, as applicable, has determined in good
faith that the conduct was in the best interest of the Partnership and was not
the result of misconduct or negligence. Section 8 of the Customer Agreement
provides for indemnification of DWR and its affiliates by the Partnership for
liabilities, losses, damages, costs, or expenses for activities taken by or on
behalf of the Partnership which DWR has determined in good faith are in the best
interests of the Partnership and are not the result of misconduct or negligence.
Section 9 of the Management Agreement provides for indemnification of the
Partnership, the General Partner and its controlling persons, their affiliates
and their respective directors, officers, shareholders, employees and
controlling persons by the Trading Advisor for liabilities, losses, claims,
damages, costs, and expenses incurred as a result of actions regarding the
Trading Advisor which are found by a court of competent jurisdiction (or an
opinion of counsel) to be a breach of the Management Agreement, or a
representation or agreement therein, the result of bad faith, misconduct or
negligence or conduct not done in good faith in the reasonable belief that it
was in, or not opposed to, the best interest of the Partnership.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------- ---------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Selling Agreement among the Registrant, Demeter Management Corporation, the
Trading Advisor and Dean Witter Reynolds Inc.
*3.01 Form of Limited Partnership Agreement of the Registrant.
3.01 (a) Form of Amended and Restated Limited Partnership Agreement of the Registrant (included
as Exhibit A to the Prospectus).
*3.02 Certificate of Limited Partnership of the Registrant.
3.02 (a) Form of Amendment to the Certificate of Limited Partnership of the Registrant.
5.01 Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of
Units (including consent).
8.01 Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal
income tax matters (including consent).
10.01 Form of Amended and Restated Customer Agreement between the Registrant and Dean Witter
Reynolds Inc.
10.02 Form of Amended and Restated Management Agreement among the Registrant, the General
Partner and the Trading Advisor.
10.03 Subscription and Exchange Agreement and Power of Attorney to be executed by certain
purchasers of Units (included as Exhibit B to the Prospectus).
10.04 Escrow Agreement among the Registrant, Dean Witter Reynolds Inc., and The Chase
Manhatten Bank, the escrow agent.
23.01 Consent of Independent Auditors for the General Partner and the Registrant.
</TABLE>
- ------------------------
*Previously filed with Registration Statement No. 33-36656, as amended, and
incorporated herein by reference.
(B) FINANCIAL STATEMENTS.
Included in the Prospectus:
Dean Witter Portfolio Strategy Fund L.P.
Independent Auditors' Report
Statements of Financial Condition
Statements of Operations
Statements of Changes in Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Demeter Management Corporation
Independent Auditors' Report
Statements of Financial Condition
Notes to Statements of Financial Condition
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (a) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) to
reflect in the Prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; and (c) to include
any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) That all post-effective amendments will comply with the applicable
forms, rules and regulations of the Securities and Exchange Commission in effect
at the time such post-effective amendments are filed.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York on the 27th day of March, 1997.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
By: DEMETER MANAGEMENT
CORPORATION,
General Partner
By: __________/s/_MARK J. HAWLEY__________
Mark J. Hawley, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ---------------------------------------------------- ------------------
<S> <C> <C>
DEMETER MANAGEMENT General Partner
CORPORATION
/s/MARK J. HAWLEY President and Director of the General Partner March 27, 1997
Mark J. Hawley
/s/RICHARD M. DEMARTINI Chairman of the Board and Director of the General March 27, 1997
Richard M. DeMartini Partner
Director of the General Partner March , 1997
Laurence E. Mollner
/s/LAWRENCE VOLPE Director of the General Partner March 27, 1997
Lawrence Volpe
Director of the General Partner March , 1997
Joseph G. Siniscalchi
Director of the General Partner March , 1997
Edward C. Oelsner, III
/s/ROBERT E. MURRAY Director of the General Partner March 27, 1997
Robert E. Murray
/s/PATTI L. BEHNKE Vice President and Chief Financial March 27, 1997
Patti L. Behnke and Principal Accounting Officer of the General
Partner
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT PAGE
- -------------- ------------------------------------------------------------------------------------------- -----
<C> <S> <C>
1.01 Form of Selling Agreement among the Registrant, Demeter Management Corporation, the Trading
Advisor and Dean Witter Reynolds Inc.
*3.01 Form of Limited Partnership Agreement of the Registrant....................................
3.01 (a) Form of Amended and Restated Limited Partnership Agreement of the Registrant (included as
Exhibit A to the Prospectus)..............................................................
*3.02 Certificate of Limited Partnership of the Registrant.......................................
3.02 (a) Form of Amendment to the Certificate of Limited Partnership of the Registrant.
5.01 Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units
(including consent).......................................................................
8.01 Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income
tax matters (including consent)...........................................................
10.01 Form of Amended and Restated Customer Agreement between the Registrant and Dean Witter
Reynolds Inc..............................................................................
10.02 Form of Amended and Restated Management Agreement among the Registrant, the General Partner
and the Trading Advisor...................................................................
10.03 Subscription and Exchange Agreement and Power of Attorney to be executed by certain
purchasers of Units (included as Exhibit B to the Prospectus).............................
10.04 Escrow Agreement among the Registrant, Dean Witter Reynolds Inc., and The Chase Manhattan
Bank, the escrow agent....................................................................
23.01 Consent of Independent Auditors for the General Partner and the Registrant.................
</TABLE>
- ---------
*Previously filed with Registration Statement No. 33-36656, as amended, and
incorporated herein by reference.
<PAGE>
Exhibit 1.01
SELLING AGREEMENT
Dated as of __________, 1997
Dean Witter Reynolds Inc.
2 World Trade Center, 62nd Floor
New York, New York 10048
Dear Sirs:
Dean Witter Portfolio Strategy Fund L.P., a limited partnership
organized pursuant to its certificate of limited partnership filed on August 28,
1990, as amended on July 24, 1996 (as amended, the "Certificate of Limited
Partnership") and its limited partnership agreement dated as of August 28, 1990,
as amended and restated as of ________, 1997, (as amended and restated, the
"Limited Partnership Agreement") under the law of the State of Delaware (the
"Partnership"), proposes, subject to the terms and conditions set forth in this
Agreement, to offer, sell, and issue up to 50,000 Units of Limited Partnership
Interest of the Partnership (the "Units").
Demeter Management Corporation, a Delaware corporation, is the sole
general partner of the Partnership (the "General Partner"). John W. Henry &
Company, Inc. a California corporation (the "Trading Advisor"), acts as trading
advisor with respect to the management of the Partnership's trading activities
pursuant to an amended and restated management agreement between the Trading
Advisor, the Partnership and the General Partner (the "Management Agreement")
dated as of the Closing, as such term is defined in the Partnership's Prospectus
(defined below).
Dean Witter Reynolds Inc., a Delaware corporation, will act as
selling agent pursuant to this Agreement ("DWR") and acts as commodity broker
(in such capacity, the "Commodity Broker") pursuant to an amended and restated
customer agreement between the Partnership and the Commodity Broker dated as of
September 1, 1996, (the "Customer Agreement"). Subscriptions for Units will be
held by The Chase Manhattan Bank (in such capacity, the "Escrow Agent") pursuant
to an escrow agreement dated among the Partnership, The Chase Manhattan Bank and
DWR (the "Escrow Agreement").
1. Representations and Warranties of the General Partner and the
Partnership. The General Partner and the Partnership represent and warrant to
each of the other parties hereto, as follows:
(a) The Partnership has provided to the Trading Advisor and
DWR and filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-1 (No. 333- ), as filed with: (i) the SEC on
________, 1997 and a related preliminary prospectus (which has not been
distributed to the public) for the registration of the Units under the
Securities Act of 1933, as amended (the "1933 Act"), and the rules and
<PAGE>
regulations promulgated thereunder (the "SEC Regulations"), and has filed copies
thereof with; (ii) the Commodity Futures Trading Commission (the "CFTC") under
the Commodity Exchange Act, as amended (the "CEAct") and the rules and
regulations promulgated thereunder (the "CFTC Rules"); (iii) the National
Association of Securities Dealers, Inc. (the "NASD") pursuant to its Conduct
Rules; and (iv) the National Futures Association (the "NFA") in accordance with
NFA Compliance Rule 2-13, and has filed any such amendments thereto and any such
amended prospectuses as may have been required by the SEC or the CFTC or any
other applicable regulatory authority or as advised by counsel as of the date
hereof. The registration statement, as amended and previously delivered to all
parties hereto and the amended prospectus included therein are hereinafter
called the "Registration Statement" and the "Prospectus," respectively, except
that (i) if the Partnership files a post-effective amendment to the registration
statement, then the term "Registration Statement" shall, from and after the
declaration of the effectiveness of such post-effective amendment, refer to the
registration statement as amended by such post-effective amendment thereto, and
the term "Prospectus" shall refer to the amended prospectus then on file with
the SEC as part of the Registration Statement, and (ii) if a subsequent
prospectus is filed pursuant to Rule 424 of the SEC Regulations, the term
"Prospectus" shall refer to the prospectus most recently filed pursuant to such
Rule from and after the date on which it shall have been first used, including
any amendment or supplement thereto, from and after the date on which it shall
have been first used. The Partnership will not file any amendment to the
Registration Statement or any amendment or supplement to the Prospectus unless
DWR and the Trading Advisor have received reasonable prior notice of and a copy
of such amendments or supplements and have not reasonably objected thereto in
writing.
(b) The Limited Partnership Agreement provides for the
subscription for and sale of the Units; all action required to be taken by the
General Partner and the Partnership as a condition to the sale of the Units to
qualified subscribers therefor has been, or prior to the Closing as defined in
Section 6(b) hereof will have been, taken; and, upon payment of the
consideration therefor specified in each accepted Subscription and Exchange
Agreement and Power of Attorney in the form attached to the Prospectus, the
Units will constitute valid limited partnership interests in the Partnership.
(c) The Partnership is a limited partnership duly organized
pursuant to the Certificate of Limited Partnership, the Limited Partnership
Agreement, and the Delaware Revised Uniform Limited Partnership Act ("DRULPA"),
and is validly existing under the laws of the State of Delaware with full power
and authority to engage in its activities as described in the Prospectus; the
Partnership has received a certificate of authority to do business in the State
of New York as provided by Section 120-902 of the New York Revised Limited
Partnership Act and is qualified to do business in each jurisdiction in which
the nature or conduct of its business requires such qualification and where
failure to be so qualified could materially adversely affect the Partnership's
ability to perform its obligations hereunder or under the Management Agreement,
the Customer Agreement, the Escrow Agreement, or the Limited Partnership
Agreement, as applicable.
-2-
<PAGE>
(d) The General Partner is duly organized and validly existing
and in good standing as a corporation under the laws of the State of Delaware
and in good standing and qualified to do business as a foreign corporation under
the laws of the State of New York and is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature or
conduct of its business requires such qualification and where the failure to be
so qualified could materially adversely affect the General Partner's ability to
perform its obligations hereunder or under the Management Agreement, the Limited
Partnership Agreement, or as described in the Prospectus.
(e) The Partnership and the General Partner have full
partnership or corporate power and authority under applicable law to conduct
their business and to perform their respective obligations, as applicable, under
the Limited Partnership Agreement, the Escrow Agreement, the Management
Agreement, the Customer Agreement, and this Selling Agreement (this
"Agreement").
(f) The Registration Statement and Prospectus contain all
statements and information required to be included therein by the CEAct and the
CFTC Rules. At all times subsequent to the Registration Statement having become
effective under the 1933 Act up to and including the Closing, the Registration
Statement and Prospectus have complied and will comply in all material respects
with the requirements of the 1933 Act, the SEC Regulations, the CEAct, the CFTC
Rules, and the rules of the NASD and NFA. As of its effective date, the
Registration Statement did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus, as of its date of
issue and at the Closing, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading. Any supplemental sales literature employed in the offering of
Units ("Sales Literature"), when read in conjunction with the Prospectus, will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which such statements were made, not misleading. The Sales Literature will
comply with the CEAct, the CFTC Rules, SEC Regulations, and the rules of the NFA
and NASD. This representation and warranty shall not, however, apply to any
statement or omission in the Registration Statement, Prospectus or Sales
Literature relating to the Trading Advisor or made in reliance upon and in
conformity with information furnished or approved in writing by the Trading
Advisor.
(g) The accountants who certified the financial statements
filed with the SEC as part of the Registration Statement are, with respect to
the General Partner and the Partnership, independent public accountants as
required by the 1933 Act and the SEC Regulations.
-3-
<PAGE>
(h) The financial statements filed as part of the Registration
Statement and those included in the Prospectus present fairly the financial
positions of the Partnership and of the General Partner as of the dates
indicated, and said financial statements have been prepared in conformity with
generally accepted accounting principles (as described therein).
(i) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
material adverse change in the condition, financial or otherwise, business or
prospects of the General Partner or the Partnership, whether or not arising in
the ordinary course of business.
(j) The General Partner will have a net worth at the Closing
sufficient in amount and satisfactory in form to meet the net worth requirements
set forth in the Limited Partnership Agreement, or as otherwise set forth in the
opinion of Cadwalader, Wickersham & Taft, counsel for the General Partner, for
classification of the Partnership as a partnership for federal income tax
purposes.
(k) The Limited Partnership Agreement, the Management
Agreement and this Agreement have each been duly and validly authorized,
executed and delivered by the General Partner on behalf of the Partnership and
the General Partner and each constitutes a valid, binding and enforceable
agreement of the Partnership and of the General Partner in accordance with its
terms. The Escrow Agreement has been duly and validly authorized, executed and
delivered by the General Partner on behalf of the Partnership and constitutes a
valid, binding and enforceable agreement of the Partnership in accordance with
its terms. The Customer Agreement has been duly and validly authorized, executed
and delivered by the General Partner on behalf of the Partnership.
(l) The execution and delivery of the Limited Partnership
Agreement, the Escrow Agreement, the Customer Agreement, the Management
Agreement, and this Agreement, the incurrence of the obligations set forth in
each of such agreements and the consummation of the transactions contemplated
therein and in the Registration Statement and Prospectus will not violate, or
constitute a breach of, or default under, the General Partner's certificate of
incorporation or bylaws, the Certificate of Limited Partnership, or the Limited
Partnership Agreement, or any agreement or instrument by which either the
General Partner or the Partnership is bound, or any order, rule, law or
regulation applicable to the General Partner or the Partnership of any court or
any governmental body or administrative agency or panel or self-regulatory
organization having jurisdiction over the General Partner or the Partnership.
(m) Except as set forth in the Prospectus, there has not been
in the five years preceding the date of the Prospectus and there is not pending
or, to the best of the General Partner's knowledge, threatened, any action, suit
or proceeding at law or in equity before or by any court or any governmental
body, any administrative agency, panel or self-regulatory organization to which
the General Partner or any General Partner Principal (as hereinafter defined) or
the Partnership is or was a party, or to which any of the assets of the
-4-
<PAGE>
General Partner or the Partnership is or was subject, and neither the General
Partner nor any of the principals of the General Partner, as "principals" is
defined in CFTC Rule 4.10(e) ("General Partner Principals") has received any
notice of an investigation by the NFA, NASD, SEC or CFTC regarding
non-compliance by the General Partner, the General Partner Principals or the
Partnership with the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), SEC Regulations, any other federal securities laws, rules or
regulations, the CEAct, the CFTC Rules, or the Rules of the NASD or NFA which
would be material to an investor's decision to invest in the Partnership.
(n) The General Partner, and each principal of the General
Partner as defined in CFTC Rule 3.1(a), has all federal, state and foreign
governmental, regulatory and exchange approvals and licenses, and has effected
all filings and registrations with federal, state and foreign governmental
regulators and self-regulatory organizations required to conduct its business
and to act as described in the Registration Statement and Prospectus or required
to perform its obligations as described under the Limited Partnership Agreement,
the Customer Agreement, the Escrow Agreement the Management Agreement and this
Agreement, as applicable. The General Partner is registered as a commodity pool
operator under the CEAct and is a member of the NFA as a commodity pool
operator. The General Partner's principals identified in the Prospectus are all
of the General Partner Principals.
2. Representations and Warranties of the Commodity Broker. The
Commodity Broker represents and warrants to each of the other parties hereto, as
follows:
(a) The Commodity Broker is a corporation duly organized and
validly existing and in good standing under the laws of the State of Delaware
and is in good standing and qualified to do business in the State of New York
and in each other jurisdiction in which the nature or conduct of its business
requires such qualification and the failure to be duly qualified would
materially adversely affect the Commodity Broker's ability to perform its
obligations hereunder or under the Customer Agreement. The Commodity Broker has
full corporate power and authority to perform its obligations under the Customer
Agreement and this Agreement and to act as described in the Registration
Statement and Prospectus.
(b) As to the Commodity Broker and the "principals" of the
Commodity Broker as defined in CFTC Rule 4.10(e) (the "Commodity Broker
Principals"): (i) the Registration Statement and Prospectus are accurate and
complete in all material respects and contain all statements and information
required to be included therein under the 1933 Act, the SEC Regulations, the
CEAct, the CFTC Rules, and the rules of the NFA, (ii) the Registration Statement
does not contain any untrue statement of a material fact or omit to state a
material fact which is required to be stated therein or necessary to make the
statements therein not misleading as of its effective date, and (iii) the
Prospectus, at its date of issue and as of the Closing, did not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
-5-
<PAGE>
(c) The Commodity Broker and each principal of the Commodity
Broker, as defined in CFTC Rule 3.1(a), has all federal, state and foreign
governmental regulatory and self-regulatory approvals, licenses and memberships,
and has effected all filings and registrations with federal, state and foreign
governmental regulators and self-regulatory organizations required to conduct
its business and to act as described in the Registration Statement and
Prospectus or required to perform its obligations under the Customer Agreement
and this Agreement, as applicable. The Commodity Broker is registered as a
futures commission merchant under the CEAct and is a member of the NFA as a
futures commission merchant.
(d) The Customer Agreement and this Agreement have each been
duly authorized, executed and delivered by the Commodity Broker and each
constitutes a valid and binding agreement of the Commodity Broker enforceable in
accordance with their respective terms.
(e) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as may otherwise
be stated in or contemplated by the Registration Statement and the Prospectus,
there has not been any material adverse change in the condition, financial or
otherwise, business or prospects of the Commodity Broker, whether or not arising
in the ordinary course of business.
(f) Except as set forth in the Registration Statement or
Prospectus, there has not been in the five years preceding the date of the
Prospectus and there is not pending, or, to the best of the Commodity Broker's
knowledge, threatened, any action, suit or proceeding before or by any court,
governmental body, administrative agency, panel, or self-regulatory organization
to which the Commodity Broker or any Commodity Broker Principal is or was a
party, or to which any of the assets of the Commodity Broker is or was subject
and which resulted in or might reasonably be expected to result in any material
adverse change in the condition, financial or otherwise, business or prospects
of the Commodity Broker or which would be material to an investor's decision to
invest in the Partnership. Neither the Commodity Broker nor any Commodity Broker
Principal has received any notice of an investigation by the NFA or the CFTC
regarding noncompliance by the Commodity Broker or the Commodity Broker
Principal with the CEAct, the CFTC Rules or the rules of the NFA.
(g) The execution and delivery of the Customer Agreement and
this Agreement, the incurrence of the obligations set forth in each of such
agreements and the consummation of the transactions contemplated therein and in
the Prospectus will not violate, or constitute a breach of, or default under,
the certificate of incorporation or bylaws of the Commodity Broker or any
agreement or instrument by which the Commodity Broker is bound, or any order,
law, rule or regulation applicable to the Commodity Broker of any court,
governmental body, administrative agency, panel or self-regulatory organization
having jurisdiction over the Commodity Broker.
-6-
<PAGE>
3. Representations and Warranties of the Trading Advisor. The
Trading Advisor hereby represents and warrants to and agrees with DWR, the
Partnership and the General Partner as follows:
(a) The Trading Advisor is duly organized, validly existing
and in good standing as a corporation under the laws of the state of its
incorporation and is qualified to do business as a foreign corporation and in
good standing in each other jurisdiction in which the nature or conduct of its
business requires such qualification and the failure to so qualify would
materially adversely affect the Trading Advisor's ability to perform its duties
under this Agreement and the Management Agreement. The Trading Advisor has full
corporate power and authority to perform its obligations under each of such
agreements, and as described in the Registration Statement and Prospectus. The
only principals (as defined in CFTC Rule 4.10(e)) of the Trading Advisor are
those set forth in the Prospectus (the "Trading Advisor Principals").
(b) All references to the Trading Advisor and each Trading
Advisor Principal, including the Trading Advisor's trading approaches and
programs, in the Registration Statement and the Prospectus, and in the Sales
Literature which has been approved in writing by the Trading Advisor, are
accurate and complete in all material respects. With respect to the material
relating to the Trading Advisor and each Trading Advisor Principal, including
the Trading Advisor's and the Trading Advisor Principals' trading approaches and
programs, as applicable, (i) the Registration Statement and Prospectus contain
all statements and information required to be included therein under the 1933
Act, the SEC Regulations, the CEAct, the CFTC Rules and the rules of the NFA,
(ii) the Registration Statement does not contain any misleading or untrue
statement of a material fact or omit to state a material fact which is required
to be stated therein or necessary to make the statements therein not misleading,
and (iii) the Prospectus at its date of issue did not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading.
(c) The Management Agreement and this Agreement have each been
duly and validly authorized, executed and delivered on behalf of the Trading
Advisor and each constitutes a valid and binding agreement of the Trading
Advisor enforceable in accordance with its terms.
(d) The Trading Advisor and each "principal" of the Trading
Advisor, as defined in CFTC Rule 3.1(a), has all federal, state and foreign
governmental, regulatory, and self-regulatory approvals, licenses and
memberships and has effected all filings and registrations with federal, state
and foreign regulators and self-regulatory organizations required to conduct
business and to act as described in the Registration Statement and Prospectus or
required to perform its or his obligations under this Agreement and the
Management Agreement, as applicable. The Trading Advisor is registered as a
commodity trading advisor under the CEAct and is a member of the NFA as a
commodity trading advisor.
-7-
<PAGE>
(e) The execution and delivery of the Management Agreement and
this Agreement, the incurrence of the obligations set forth in each of such
agreements, and the consummation of the transactions contemplated therein and in
the Prospectus will not violate, or constitute a breach of, or default under,
the certificate of incorporation or bylaws of the Trading Advisor or any
agreement or instrument by which it is bound or of any order, law, rule or
regulation of any court, governmental body, administrative agency, panel or
self-regulatory organization having jurisdiction over the Trading Advisor.
(f) The Trading Advisor is not required to be registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, in
respect to its activities described in the Registration Statement and the
Prospectus.
(g) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as may otherwise
be stated in or contemplated by the Registration Statement and the Prospectus,
there has not been any material adverse change in the condition, financial or
otherwise, business or prospects of the Trading Advisor or any Trading Advisor
Principal whether or not arising in the ordinary course of business.
(h) Except as set forth in the Registration Statement or
Prospectus or as disclosed in writing to the General Partner, there has not been
in the five years preceding the date of the Prospectus and there is not pending,
or, to the best of the Trading Advisor's knowledge threatened, any action, suit
or, proceeding before or by any court, governmental body, administrative agency,
panel or self-regulatory organization to which the Trading Advisor or any
Trading Advisor Principal is or was a party, or to which any of the assets of
the Trading Advisor is or was subject and which resulted in or might reasonably
be expected to result in any material adverse change in the condition, financial
or otherwise, business or prospects of the Trading Advisor or which would be
material to an investor's decision to invest in the Partnership. Except as
otherwise disclosed in writing to the General Partner, neither the Trading
Advisor nor any Trading Advisor Principal has received any notice of an
investigation by the NFA or the CFTC regarding noncompliance by the Trading
Advisor or any of the Trading Advisor Principals with the CEAct, the CFTC Rules
or the rules of the NFA.
(i) Neither the Trading Advisor nor any Trading Advisor
Principal has received, or is entitled to receive, directly or indirectly, any
commission, finder's fee, similar fee, or rebate from any person in connection
with the organization or operation of the Partnership.
4. Covenants of the Partnership and the General Partner. The
Partnership and the General Partner covenant and agree as follows:
(a) The Partnership will use its best efforts to cause any
post-effective amendments to the Registration Statement to become effective as
promptly as possible. The Partnership will prepare and file with the SEC, NASD,
CFTC, and NFA,
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<PAGE>
promptly upon DWR's request, any amendments to the Registration Statement and
any amendments and supplements to the Prospectus which may be necessary or
advisable in connection with the offering and sale of Units and will use its
best efforts to cause the same to become effective as promptly as possible.
(b) As soon as the Partnership is advised or obtains knowledge
thereof, it will advise DWR and the Trading Advisor of any requests made by the
SEC, NASD, CFTC, or NFA to amend the Registration Statement, to amend or
supplement the Prospectus, or for additional information or of the issuance by
the SEC of any stop order suspending the effectiveness of the Registration
Statement, of any order by the SEC, NASD, CFTC, or NFA preventing or suspending
the use of the Prospectus, or of the institution of any proceedings for any such
purpose, and will use its best efforts to prevent the issuance of any such order
and, if any such order is issued, to obtain the lifting thereof as promptly as
possible.
(c) If, at any time after the effective date of the
Registration Statement and any amendment thereto, any event occurs involving the
Partnership or the General Partner or any of their principals or of which the
Partnership or the General Partner or their principals are aware, as a result of
which the Registration Statement or Prospectus as then amended and supplemented
would include any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein (and, with respect to the Prospectus, in light of the circumstances
under which they were made) not misleading, or if it becomes necessary or
desirable at any time to amend or supplement the Registration Statement or
Prospectus to comply with the 1933 Act, the SEC Regulations, the CEAct, the CFTC
Rules, or the rules of the NFA, the Partnership will promptly notify DWR and the
Trading Advisor thereof and will prepare and file with the SEC, NASD, CFTC, and
NFA an amendment or supplement that will correct such statement or omission.
(d) The Partnership will furnish to each party hereto copies
of the Registration Statement, the Prospectus, and all amendments and
supplements thereto, in each case as soon as available and, in the case of DWR,
in such quantities (in the case of the Prospectus) as DWR may reasonably request
for delivery to it.
5. Covenants of the Trading Advisor. The Trading Advisor covenants
and agrees as follows:
(a) The Trading Advisor agrees reasonably to cooperate by
providing information regarding itself in the preparation by the Partnership of
any amendments or supplements to the Registration Statement and the Prospectus.
(b) The Trading Advisor agrees to notify the General Partner
immediately upon discovery of any untrue statement of a material fact in the
Registration Statement or the Prospectus relating to the Trading Advisor or the
Trading Advisor
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<PAGE>
Principals or an omission to state a material fact relating to the Trading
Advisor or the Trading Advisor Principals required to be stated therein or
necessary to make the statements therein (and, with respect to the Prospectus,
in light of the circumstances under which they were made) not misleading, or of
the occurrence of any event or change in circumstances which would result in
there being any material untrue or misleading statement or a material omission
in the Prospectus or Registration Statement regarding the Trading Advisor or the
Trading Advisor Principals, or which would result in the Prospectus not
including all material information relating to the Trading Advisor and the
Trading Advisor Principals required pursuant to the CEAct, the 1933 Act, the
CFTC Rules, or the rules of the NFA.
(c) The Trading Advisor will not use or distribute any
preliminary prospectus, Prospectus, amended or supplemented Prospectus or Sales
Literature nor engage in any selling activities whatsoever in connection with
the offering of the Units, except that the Trading Advisor shall, at the General
Partner's request, assist in the marketing of the Partnership to prospective
investors, including without limitation participating in "road show"
presentations, sales seminars, and other similar events in which the Trading
Advisor shall discuss only its own activities.
6. Appointment of the Selling Agent.
(a) Subject to the terms and conditions set forth in this
Agreement, the Partnership hereby appoints DWR as its selling agent to offer and
sell Units on a best efforts basis, without any firm commitment on the part of
DWR to purchase any Units. DWR shall offer for sale up to 50,000 Units, and such
additional Units as the General Partner may, in its discretion, register and
offer for sale from time to time.
(b) The "Offering Period" will be the period commencing on the
date of the Prospectus and ending on October 10, 1997 unless the General Partner
has sooner terminated the Offering Period. DWR will offer Units for sale at a
closing (the "Closing"), which is currently scheduled to be held as of October
1, 1997, at a price equal to 100% of the of the Net Asset Value per Unit as of
the close of business on the last day of the immediately preceding month;
provided, however, that the General Partner may at its discretion hold the
Closing as of the first business day of any month during the Offering Period (as
defined herein). The minimum subscription for new subscribers shall be $5,000,
except that the minimum subscription is (a) $2,000 in the case of an Individual
Retirement Account ("IRA"), (b) $1,000 if the subscriber previously invested at
least $5,000, or $2,000 in the case of IRAs, in the Partnership, or (c) for
subscribers who purchase Units pursuant to an Exchange (as defined in the
Prospectus) the lesser of (i) $5,000 ($2,000 in the case of IRAs), (ii) the
redemption proceeds from the sale of five units (two units in the case of IRAs)
from commodity pools other than the Spectrum Series, (iii) the proceeds from the
redemption of 500 units (200 units in the case of IRAs) from one, or any
combination, of the Spectrum Series of commodity pools, or (iv) the proceeds
from the redemption of all of a subscriber's units of limited partnership
interest in any other commodity pool for which the General Partner serves as
general partner and commodity pool operator. The number of Units received by a
subscriber will be rounded to the third decimal place.
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<PAGE>
Notwithstanding any provision to the contrary herein,
the General Partner will have the sole discretion to accept or reject any
subscription for Units in whole or in part at any time prior to acceptance. The
General Partner will determine to accept or reject a subscription generally
within 10 days of the receipt of a complete and executed Subscription and
Exchange Agreement and Power of Attorney.
(c) No selling commissions will be charged with respect to the
sale of Units during the Offering Period. The Partnership understands, however,
that from DWR's own funds it may provide to its employees an amount equal to
that described in the following paragraph.
(d) Except as provided below, employees of DWR will receive
gross sales credit equal to three percent (3%) of the Net Asset Value per Unit
as of the date of the Closing for each Unit sold by them and issued at the
Closing (such compensation along with any other underwriting compensation will
not exceed 10% of the proceeds received in connection with the issuance of the
Units). Commencing with the eighth month following the Closing at which Units
are issued and continuing until the Partnership terminates, employees of DWR who
are properly registered with the CFTC also will receive up to 35% of the
brokerage commissions that are attributable to outstanding Units sold by them
and received by DWR as commodity broker for the Partnership. Such continuing
compensation is to be paid in recognition of employees' continuing services to
Limited Partners of the Partnership. No person will receive the continuing
compensation described above who is not DWR's employee at the time of receipt of
payment.
DWR will not pay to an employee the 3% gross sales
credit described above with respect to Units purchased by a subscriber pursuant
to an Exchange (as defined in the Prospectus). Such employee will receive the
continuing payments with respect to brokerage commissions which are charged to
the Partnership which are comparable to the payments which were received by such
employee with respect to such other commodity pools.
(e) Notwithstanding the foregoing, DWR will not pay any such
continuing compensation to any of its employees who is not legally qualified or
permitted to receive such continuing compensation. In that regard, each of DWR's
employees who receives any such monthly compensation must have become registered
as an associated person with the CFTC and with the NFA in such capacity only
after either having passed the National Commodity Futures Examination (NASD Test
Series #3), the Futures Managed Funds Examination (NASD Test Series #31) or
having been "grandfathered" under the CEAct and the bylaws and rules of the NFA.
Also, such compensation may be paid by DWR to its employees only in respect of
outstanding Units sold by such persons and only so long as the additional
services described below are provided by such persons to Limited Partners;
provided, however, that DWR may not pay any portion of such compensation to any
individual no longer employed by it, and provided, further, that such
compensation may be paid to its employees who, although not responsible for the
sale of an outstanding Unit,
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<PAGE>
provide the services described below in place of the individual who was
responsible for such sale.
The additional services that DWR's employees will
provide on an ongoing basis to Limited Partners at no charge will include, but
not be limited to: (i) inquiring of the General Partner from time to time, at
the request of Limited Partners, as to the Net Asset Value of a Unit; (ii)
inquiring of the General Partner from time to time, at the request of Limited
Partners, as to the futures markets and the activities of the Partnership; (iii)
responding to questions of Limited Partners from time to time with respect to
monthly account statements, annual reports, financial statements, and annual tax
information furnished periodically to Limited Partners; (iv) providing advice to
Limited Partners from time to time as to when and whether to redeem Units; (v)
assisting Limited Partners from time to time in the redemption of Units; and
(vi) providing such other services as Limited Partners from time to time may
reasonably request.
(f) The Partnership and DWR acknowledge that DWR will be paid
any and all redemption charges imposed on Limited Partners in accordance with
Section 10(b) of the Limited Partnership Agreement.
7. Undertakings of DWR.
(a) DWR agrees to use its best efforts to offer and sell Units
on the terms set forth in this Agreement, the Registration Statement, and the
Prospectus. It is understood that DWR has no commitment to offer and sell Units
or to purchase Units other than to use its best efforts to offer and sell Units.
(b) DWR will make the public offering of Units at the offering
price and on the other terms and conditions set forth in the Registration
Statement, the Prospectus, and this Agreement. DWR will offer and sell Units
only to persons who satisfy the suitability and/or minimum investment
requirements set forth in the Prospectus and the Subscription and Exchange
Agreement and Power of Attorney and who, to the General Partner's satisfaction,
complete a Subscription and Exchange Agreement and Power of Attorney. DWR will
conduct a thorough review of the suitability of each subscriber for Units, of
each Subscription and Exchange Agreement and Power of Attorney (i) authorizing
the General Partner and DWR to transfer the full subscription price from the
subscriber's customer account with DWR to the Dean Witter Portfolio Strategy
Fund L.P. Escrow Account (the "Escrow Account"), and (ii) requesting the
redemption of units in another partnership of which the General Partner is the
general partner and commodity pool operator and authorizing the purchase of
Units with the proceeds of such redemption.
All of DWR's branch offices will be required to forward
subscriptions to DWR's New York, New York branch office no later than noon of
the first business day following their receipt of an acceptable Subscription and
Exchange Agreement and Power of Attorney from a subscriber for Units. Subsequent
to its review of each Subscription and Exchange Agreement and Power of Attorney,
the General Partner will notify
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<PAGE>
DWR, and DWR shall notify each subscriber by the business day following its
receipt of notice from the General Partner, of the General Partner's acceptance
of all, a portion, or none of the subscriber's subscription.
All funds from subscriptions received by DWR during the
Offering Period and not rejected by the General Partner will be promptly
deposited by DWR in the Partnership's Escrow Account which will have been
established with the Escrow Agent. The escrow arrangements are described in the
Prospectus and in the Escrow Agreement to which DWR is a party along with the
Escrow Agent and the Partnership. A subscriber whose Subscription and Exchange
Agreement and Power of Attorney is received by DWR and not immediately rejected
must have the full subscription amount in his customer account with DWR on the
first business day following the date that his Subscription and Exchange
Agreement and Power of Attorney is received by DWR, and DWR will transfer such
subscription funds to the Escrow Agent on that date. DWR will notify the General
Partner of the subscription amount deposited with the Escrow Agent on behalf of
each subscriber for Units and the name and residence address of each such
subscriber.
DWR will offer and sell Units in compliance with the
requirements set forth in the Registration Statement, the Prospectus
(particularly under the captions "Summary of the Prospectus -- Investment
Requirements," "Purchases by Employee Benefit Plans -- ERISA Considerations,"
"Plan of Distribution," and "Subscription Procedure"), the Subscription and
Exchange Agreement and Power of Attorney, and this Agreement. In connection with
DWR's acting as selling agent, DWR will comply fully at all times with all
applicable federal, state, and foreign securities and commodities laws
(including, without limitation, the 1933 Act, the 1934 Act, the CEAct and the
securities ("Blue Sky") laws of the jurisdictions in which DWR solicits
subscriptions), and all requirements of the NASD (particularly Conduct Rule
2810), the Board of Governors of the Federal Reserve System, and the securities
and commodities exchanges and other governmental and self-regulatory authorities
and organizations having jurisdiction over DWR. Specifically, (i) DWR will not
permit the purchase of any Units by a customer account over which DWR has
discretionary authority without prior written approval by the customer owning
such account; (ii) DWR confirms that it has reasonable grounds to believe that
all material facts are adequately and accurately disclosed in the Prospectus,
which provides a basis for evaluating an investment in the Partnership; (iii)
DWR confirms that in determining the adequacy of disclosed facts pursuant to
clause (ii), it has obtained information on material facts relating to: (A)
items of compensation, (B) tax aspects, (C) financial stability and experience
of the General Partner, and (D) the Partnership's conflicts and risk factors;
(iv) in recommending to a subscriber the purchase or sale of Units, DWR shall
take such measures as are reasonably necessary to assure itself that its Account
Executives have informed such subscriber of all pertinent facts relating to the
liquidity and marketability of the Units and that its Account Executives have
reasonable grounds to believe, on the basis of information obtained from such
subscriber concerning his investment objectives, other investments, financial
situation and needs, and any other information known by such Account Executive,
that: (A) such subscriber is or will be in a financial position appropriate to
enable him to realize to a
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<PAGE>
significant extent the benefits described in the Prospectus, (B) such subscriber
has a fair market net worth sufficient to sustain the risks inherent in the
purchase of Units, including loss of investment and lack of liquidity, and (C)
the purchase of Units is otherwise suitable for such subscriber; (v) DWR shall
take such measures as are reasonably necessary to assure itself that each
subscriber has received a Prospectus at least five days prior to the Closing;
and (vi) the General Partner will maintain in its files, located c/o Dean Witter
Reynolds Inc., Two World Trade Center, New York, New York 10048, each
subscriber's Subscription and Exchange Agreement and Power of Attorney for not
less than six years and DWR will maintain, at its respective branch offices, any
other documents disclosing the basis upon which the determination of suitability
was reached for each such subscriber.
(c) If for any reason the General Partner determines not to
hold the Closing, the offering of Units will terminate and each subscription
received during the Offering Period will be promptly returned to DWR for deposit
in the subscriber's customer account with DWR within five business days of the
termination of the Offering Period, together with any interest earned on such
subscriber's funds while held in escrow in accordance with the Escrow Agreement,
and DWR will promptly notify each subscriber that such subscription has been
returned to such subscriber's customer account with DWR and that such funds are
under such subscriber's control.
All subscriptions received and accepted by the General
Partner will, upon the satisfaction at the Closing of the conditions set forth
in Sections 10 and 11 hereof, be delivered to the Partnership at the Closing,
and any interest earned on a subscriber's subscription funds while held in
escrow will be promptly returned to DWR in accordance with the Escrow Agreement
for prompt deposit in the subscriber's customer account with DWR. Interest
earned on any subscriptions deposited into the Escrow Account and thereafter
rejected by the General Partner will be credited to the subscriber's customer
account with DWR.
8. Blue Sky Filings. The Partnership will use its best efforts to
qualify Units for offer and sale under the Blue Sky laws of such jurisdictions
as DWR may reasonably request, to make applications, file documents, and furnish
information as may be reasonably required for that purpose, and to comply with
such laws so as to permit the continuance of sales and dealings in such
jurisdictions for as long as may be necessary to complete the offer and sale of
Units, provided, however, that neither the Partnership nor the General Partner
will be required to qualify as or be subject to taxation as a foreign
partnership or corporation or to execute a general consent to service of process
in any jurisdiction. The Partnership further agrees that its counsel will
prepare and deliver to DWR Blue Sky surveys which will set forth, for DWR's
guidance, in what manner, at what time, in what amounts, and by whom Units may
be offered and sold in jurisdictions requested by DWR as provided above.
9. Offering Expenses. DWR shall pay all of the expenses of the
offering of Units (collectively, the "Offering Expenses"), including all legal
and accounting fees and expenses of outside firms and all costs, disbursements,
filing fees, printing and duplication
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<PAGE>
costs, marketing costs and expenses and other related costs and expenses. Legal
and accounting fees and expenses of outside firms shall include the legal and
accounting expenses relating to the offering of Units of DWR, the Partnership
and the General Partner. Marketing costs and expenses shall include, but not be
limited to, the printing and preparation of Sales Literature, the production of
any sales video, and the staging of sales seminars and the travel of DWR and
General Partner personnel associated therewith. DWR shall not be reimbursed for
such expenses by the Partnership. Such expenses will not include the travel,
legal and other expenses of the Trading Advisor, including such expenses
incurred in connection with the participation by the Trading Advisor in road
shows as described in Section 5(c).
10. Closings.
(a) The Closing, if any, for the acceptance of subscriptions
for Units received during the Offering Period is currently scheduled to be held
as of October 1, 1997. The Closing will be held at such time and at such
location as the General Partner and DWR may mutually agree.
(b) Subject to its right to reject any subscription in its
sole discretion in whole or in part at any time prior to acceptance, the General
Partner, on behalf of the Partnership, will accept subscriptions for Units
properly made and cause proper entry to be made in the Unit register to be
maintained by the General Partner. DWR will cause a receipt to be made on behalf
of subscribers for Units accepted by the General Partner at the Closing and
shall send such subscribers a confirmation of purchase in its customary form.
(c) At the Closing, the delivery, receipt, and acceptance of
subscriptions for Units will be subject to the terms and conditions set forth in
this Agreement, including the following: (i) payment of the full subscription
price for Units and delivery of a properly completed Subscription and Exchange
Agreement and Power of Attorney by each subscriber, and (ii) compliance with
Section 11 hereof. Upon the satisfaction of such terms and conditions, the
aggregate subscription price for Units (exclusive of any interest earned on such
subscriptions while held in escrow and payable to the subscribers in accordance
with the Escrow Agreement) will be paid and delivered to the Partnership at the
Closing.
11. Conditions of DWR's Obligations.
(a) DWR's obligations to proceed with the offering and sale of
Units and the Closing will be subject to: (i) the accuracy of the
representations and warranties by the Partnership, the General Partner and the
Trading Advisor in this Agreement as of the date hereof and as of the date of
the Closing as if such representations and warranties had been made on and as of
the date thereof; (ii) the performance by the Partnership, the General Partner
and the Trading Advisor of the covenants and agreements herein; and (iii) to the
additional conditions precedent set forth below.
(b) At the Closing, the additional conditions precedent are as
follows, unless waived by DWR:
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(i) The Registration Statement will have become effective. No stop
order suspending the effectiveness of the Registration Statement will have
been issued and no proceedings for that purpose will have been instituted
or be pending or, to the knowledge of the Partnership or DWR, contemplated
or threatened by the SEC. No order preventing or suspending the use of the
Prospectus will have been issued and no proceedings for that purpose will
have been instituted or be pending or, to the knowledge of the Partnership
or DWR, contemplated or threatened by the SEC, NASD, CFTC, or NFA. Any
requests by the SEC, NASD, CFTC, or NFA for additional information (to be
included in the Registration Statement or Prospectus or otherwise) will
have been complied with to DWR's satisfaction.
(ii) Neither DWR nor the Trading Advisor will have advised the
Partnership or the General Partner that, in its opinion, the Registration
Statement or the Prospectus contains any untrue statement of a material
fact or any omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus,
in light of the circumstances under which they were made) not misleading.
(iii) The Trading Advisor will have furnished to DWR, the General
Partner and the Partnership a certificate, dated the date of the Closing
and in form and substance satisfactory to such parties, to the effect
that:
(A) The representations and warranties by the Trading Advisor
in this Agreement are true, accurate, and complete on and as of the
date of the Closing as if made on the date of the Closing.
(B) The Prospectus, at the date of the Closing, does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of
the circumstances under which such statements were made, not
misleading.
(C) The Trading Advisor has performed all of its obligations
and satisfied all of the conditions on its part to be performed or
satisfied under this Agreement, as applicable, as of the date of the
Closing.
(iv) The General Partner will have furnished to DWR and the Trading
Advisor a certificate, dated the date of the Closing and in form and
substance satisfactory to such parties, to the effect that:
(A) The representations and warranties by the Partnership and
the General Partner in this Agreement are true,
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<PAGE>
accurate, and complete on and as of the date of the Closing as if
made on the date of the Closing.
(B) No stop order suspending the effectiveness of the
Registration Statement has been issued by the SEC and no proceedings
for that purpose have been instituted or are pending or, to the
knowledge of the General Partner, are contemplated or threatened
under the 1933 Act. No order preventing or suspending the use of the
Prospectus has been issued by the SEC, NASD, CFTC, or NFA and no
proceedings for that purpose have been instituted or are pending or,
to the knowledge of the General Partner, are contemplated or
threatened under the 1933 Act or the CEAct.
(C) The Partnership and the General Partner have performed all
of their obligations and satisfied all of the conditions on their
part to be performed or satisfied under this Agreement, the
Management Agreement, the Escrow Agreement and the Customer
Agreement at or prior to the date of the Closing.
(D) The General Partner has made the capital contribution to
the Partnership and has met the net worth standard, both as required
of it by the Limited Partnership Agreement.
(v) Cadwalader, Wickersham & Taft, counsel to the General Partner
and the Partnership, shall deliver its opinion to the parties hereto at
the Closing, in form and substance satisfactory to the parties hereto, to
the effect that:
(A) The Limited Partnership Agreement provides for the
subscription for and sale of the Units; all action required to be
taken by the General Partner and the Partnership as a condition to
the subscription for and sale of the Units to qualified subscribers
therefor has been taken; and, upon payment of the consideration
therefor specified in the accepted Subscription and Exchange
Agreements and Powers of Attorney, the Units will constitute valid
limited partnership interests in the Partnership and each subscriber
who purchases Units will become a Limited Partner, subject to the
requirement that each such purchaser shall have duly completed,
executed and delivered to the Partnership a Subscription and
Exchange Agreement and Power of Attorney relating to the Units
purchased by such purchaser, that such purchaser meets all
applicable suitability standards and that the representations and
warranties of such purchaser in the
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Subscription and Exchange Agreement and Power of Attorney are true
and correct and that such purchaser is included as a Limited Partner
in the Partnership's records.
(B) The Partnership is a limited partnership duly formed
pursuant to the Certificate of Limited Partnership, the Limited
Partnership Agreement and the DRULPA and is validly existing under
the laws of the State of Delaware with full partnership power and
authority to conduct the business in which it proposes to engage as
described in the Registration Statement and Prospectus and to
perform its obligations under the Management Agreement, the Escrow
Agreement, the Customer Agreement and this Agreement; the
Partnership has received a Certificate of Authority as contemplated
under Section 121-902 of the New York Revised Limited Partnership
Act and is qualified to do business in New York and need not affect
any other filings or qualifications under the laws of any other
jurisdictions to conduct its business as described in the
Registration Statement and Prospectus.
(C) The General Partner is duly organized, validly existing
and in good standing as a corporation under the laws of the State of
Delaware with full corporate power and authority to act as general
partner of the Partnership and is qualified to do business and is in
good standing as a foreign corporation in the State of New York and
in each other jurisdiction in which the nature or conduct of its
business requires such qualification and the failure to so qualify
might reasonably be expected to result in material adverse
consequences to the Partnership or the General Partner's ability to
perform its obligations as described in the Registration Statement
and Prospectus. The General Partner has full corporate power and
authority to conduct its business as described in the Registration
Statement and Prospectus and to perform its obligations under the
Limited Partnership Agreement, the Management Agreement, and this
Agreement.
(D) The General Partner, each of its principals as defined in
CFTC Rule 3.1(a) and the Partnership have all federal and state
governmental, regulatory and self-regulatory approvals, licenses,
registrations and memberships required by law and have made all
filings with federal and state governmental regulators and
self-regulatory organizations necessary in order for the General
Partner and the Partnership to perform their obligations under the
Limited Partnership Agreement, the Escrow
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Agreement, the Customer Agreement, the Management Agreement and this
Agreement, and to conduct their business as described in the
Registration Statement and Prospectus, except for such approvals,
licenses, memberships, filings, and registrations the absence of
which would not have a material adverse effect on their ability to
act as described in the Registration Statement and Prospectus, or to
perform their obligations under such agreements, and, to the best of
such counsel's knowledge, after due investigation, none of such
approvals, licenses, memberships or registrations have been
rescinded, revoked or suspended.
(E) Each of the Limited Partnership Agreement, the Escrow
Agreement, the Customer Agreement, the Management Agreement and this
Agreement has been duly authorized, executed and delivered by or on
behalf of the General Partner and/or the Partnership, as the case
may be, and each of the Limited Partnership Agreement, the
Management Agreement, and this Agreement constitutes a valid and
binding agreement of the General Partner and the Partnership, and
the Escrow Agreement constitutes a valid and binding agreement of
the Partnership, and, in the case of each valid and binding
agreement above, the agreement is enforceable in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium
or similar laws at the time in effect affecting the enforceability
generally of rights of creditors and by general principals of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law), and except as enforceability of the
indemnification, exculpation and contribution provisions contained
in such agreements may be limited by applicable law or public
policy.
(F) The execution and delivery of this Agreement, the Limited
Partnership Agreement, the Customer Agreement, the Escrow Agreement,
and the Management Agreement, as applicable, and the offer and sale
of the Units by the Partnership and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions contemplated herein and therein and in the Prospectus
will not be in contravention of the General Partner's certificate of
incorporation or bylaws, the Certificate of Limited Partnership, or
the Limited Partnership Agreement and, to the best of such counsel's
knowledge based upon due inquiry of certain officers of the General
Partner, will not constitute a breach of, default under, or a
violation of any
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agreement or instrument known to such counsel by which the General
Partner or the Partnership is bound, and will not violate any order,
law, rule or regulation applicable to the General Partner or the
Partnership of any court, governmental body, administrative agency,
panel or self-regulatory organization having jurisdiction over the
General Partner or the Partnership.
(G) To the best of such counsel's knowledge based upon due
inquiry of certain officers of the General Partner, except as
disclosed in the Prospectus, there are no actions, claims or
proceedings pending or threatened in any court or before or by any
governmental body, administrative agency, panel or self-regulatory
organization, nor have there been any such actions, claims or
proceedings within the five years preceding the date of the
Prospectus, to which the General Partner, any General Partner
Principal, or the Partnership is or was a party, or to which any of
their assets is or was subject, which would be material to an
investor's decision to invest in the Partnership or which might
reasonably be expected to materially adversely affect the condition,
financial or otherwise, or business of the General Partner, or the
Partnership, whether or not arising in the ordinary course of
business, or impair their ability to discharge their obligations as
described in the Prospectus.
(H) No authorization, approval or consent of any governmental
authority or agency (with respect to the Partnership and General
Partner) is necessary in connection with the subscription for and
sale of the Units in the United States, except such as may be
required under the 1933 Act, the SEC Regulations, the CEAct, the
CFTC Rules, the NFA and NASD rules and Blue Sky laws.
(I) The information in the Prospectus under the captions "Risk
Factors - Taxation and Regulatory Risks," "Purchases by Employee
Benefit Plans -- ERISA Considerations," "Material Federal Income Tax
Considerations," "State and Local Income Tax Aspects," and "The
Limited Partnership Agreement," to the extent that such information
constitutes matters of law or legal conclusions, has been reviewed
by such counsel and is correct.
(J) The Registration Statement is effective under the 1933 Act
and, to the best of such counsel's knowledge, no
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proceedings for a stop order are pending or threatened under Section
8(d) of the 1933 Act or any Blue Sky laws.
(K) At the time the Registration Statement became effective,
the Registration Statement, and at the time the Prospectus was
issued and as of the Closing, the Prospectus, complied as to form in
all material respects with the requirements of the 1933 Act, the SEC
Regulations, the CEAct, the CFTC Rules, and the rules of the NFA and
NASD. Nothing has come to such counsel's attention that would lead
such counsel to believe that the Registration Statement at the time
it became effective contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading,
or that the Prospectus at the time it was issued or at the Closing
contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
provided, however, that Cadwalader, Wickersham & Taft need express
no opinion or belief (a) as to information in the Registration
Statement or the Prospectus regarding the Trading Advisor or its
principals, or (b) as to the financial statements, notes thereto and
other financial or statistical data set forth in the Registration
Statement and Prospectus, except that Cadwalader, Wickersham & Taft
shall opine, without rendering any opinion as to the accuracy of the
information in the performance data, that the performance data of
the Partnership set forth in the Prospectus complies as to form in
all material respects with the CEAct and CFTC Rules, except as
disclosed in the Prospectus.
(L) Based upon reliance on certain SEC No-Action letters, as
of the Closing, the Partnership need not register as an "investment
company" under the Investment Company Act of 1940, as amended.
In rendering its opinion, such counsel may rely on information
obtained from public officials, officers of the General Partner and other
sources believed by it to be responsible and may assume that signatures on all
documents examined by it are genuine, and that a Subscription and Exchange
Agreement and Power of Attorney, in the form referred to in the Prospectus, has
been duly authorized, completed, dated, executed, and delivered and that funds
representing the full subscription price for the Units purchased have been
delivered by each purchaser of Units in accordance with the requirements set
forth in the Prospectus.
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(vi) Cadwalader, Wickersham & Taft shall deliver an opinion to the
parties hereto at the Closing, in form and substance satisfactory to the
parties hereto, to the effect that:
(A) The Commodity Broker is duly organized, validly existing
and in good standing as a corporation under the laws of the State of
Delaware and is qualified to do business and in good standing as a
foreign corporation in the State of New York and in each other
jurisdiction in which such qualification is required and in which
the failure to so qualify might, in such counsel's opinion,
reasonably be expected to result in material adverse consequences to
the Partnership. The Commodity Broker has full corporate power and
authority to perform its obligations as commodity broker as
described in the Registration Statement and Prospectus and to
perform its obligations under the Customer Agreement and this
Agreement.
(B) Each of the Customer Agreement and this Agreement has been
duly and validly authorized, executed and delivered by the Commodity
Broker and constitutes a valid and binding agreement of the
Commodity Broker enforceable in accordance with its terms, subject
only to bankruptcy, insolvency, reorganization, moratorium or
similar laws at the time in effect affecting the enforceability
generally of rights of creditors and by general principals of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law), and except as enforceability of the
indemnification, exculpation and contribution provisions contained
in such agreements may be limited by applicable law or public
policy.
(C) The Commodity Broker has all federal and state
governmental, regulatory, and self-regulatory approvals, licenses,
registrations and memberships required by law and has made all
filings with federal and state governmental regulators and
self-regulatory organizations required to conduct its business as
commodity broker as described in the Registration Statement,
Customer Agreement and Prospectus, or required to perform its
obligations as commodity broker under the Customer Agreement and
this Agreement, except for such approvals, licenses, memberships,
filings, and registrations the absence of which would not have a
material adverse effect on its ability to act as described in the
Registration Statement and Prospectus or to perform its obligations
under such agreements (except that counsel need not opine as to
exchange or clearinghouse
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membership) and, to the best of such counsel's knowledge after due
investigation, none of such approvals, licenses, memberships, or
registrations have been rescinded, revoked or suspended.
(D) The execution and delivery of the Customer Agreement and
this Agreement, the incurrence of the obligations as commodity
broker herein and therein set forth and the consummation of the
transactions as commodity broker contemplated herein and therein and
in the Prospectus will not be in contravention of its certificate of
incorporation or bylaws and, to the best of such counsel's knowledge
based upon due inquiry of certain officers of the Commodity Broker,
will not constitute a breach of, default under, or a violation of
any agreement or instrument known to such counsel by which the
Commodity Broker is bound, and will not violate any order, law, rule
or regulation applicable to the Commodity Broker of any court,
governmental body, administrative agency, panel or self-regulatory
organization having jurisdiction over the Commodity Broker.
(E) To the best of such counsel's knowledge based upon due
inquiry of certain officers of the Commodity Broker, except as
disclosed in the Prospectus, there are no actions, claims or
proceedings pending or threatened in any court or before or by any
governmental body, administrative agency, panel or self-regulatory
organization, nor have there been any such actions, claims or
proceedings within the five years preceding the date of the
Prospectus, to which the Commodity Broker or any Commodity Broker
Principal is or was a party or to which any of its assets is or was
subject, which would be material to an investor's decision to invest
in the Partnership or which might reasonably be expected to
materially adversely affect the condition, financial or otherwise,
or the business of the Commodity Broker, whether or not arising in
the ordinary course of business, or impair its ability to discharge
its obligations as described in the Prospectus.
(F) Nothing has come to such counsel's attention to lead such
counsel to believe that, as to the Commodity Broker in its role as
commodity broker and the Commodity Broker Principals, (a) the
Registration Statement at the time it became effective contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or
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necessary to make the statements therein not misleading, or (b) the
Prospectus at the time it was issued or at the Closing contained an
untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein relating to the
Commodity Broker in its role as commodity broker and the Commodity
Broker Principals, in light of the circumstances under which they
were made, not misleading; provided, however, that counsel need
express no opinion or belief as to the financial statements, notes
thereto and other financial or statistical data set forth in the
Registration Statement and Prospectus, except that counsel shall
opine, without rendering any opinion as to the accuracy of the
information in the performance data, that the performance data of
the Trading Advisor set forth in the Prospectus complies as to form
in all material respects with the CEAct and CFTC Rules, except as
disclosed in the Prospectus.
In rendering its opinion, such counsel may rely on information
obtained from public officials, officers of the Commodity Broker, and other
sources believed by it to be responsible and may assume that signatures on all
documents examined by it are genuine.
(vii) Counsel to the Trading Advisor shall deliver an opinion to
DWR, the General Partner and the Partnership at the Closing in form and
substance satisfactory to such parties, in respect of the Trading Advisor,
to the effect that:
(A) The Trading Advisor is a corporation duly organized,
validly existing and in good standing under the laws of the state of
its incorporation and is qualified to do business as a foreign
corporation and in good standing in each other jurisdiction in which
the nature or conduct of its business requires such qualification
and the failure to be duly qualified would materially adversely
affect the Trading Advisor's ability to perform its obligations
under the Management Agreement and this Agreement. The Trading
Advisor has full corporate power and authority to conduct its
business as described in the Registration Statement and Prospectus
and to perform its obligations under the Management Agreement and
this Agreement.
(B) The Trading Advisor and the Trading Advisor Principals
have all governmental, regulatory and self-regulatory approvals,
licenses, registrations and memberships required by law, and the
Trading Advisor and the Trading Advisor Principals
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have made all filings with federal and state governmental regulators
and self-regulatory organizations required to conduct the Trading
Advisor's business and to act as described in the Registration
Statement and the Prospectus and to perform its obligations under
this Agreement and the Management Agreement, except for such
licenses, memberships, filings and registrations the absence of
which would not have a material adverse effect on its ability to act
as described in the Registration Statement and Prospectus or to
perform its obligations under such agreements, and, to the best of
such counsel's knowledge after due investigation, none of such
approvals, licenses, memberships, or registrations has been
rescinded, revoked or suspended.
(C) Each of the Management Agreement and this Agreement has
been duly and validly authorized, executed and delivered by or on
behalf of the Trading Advisor and constitutes a valid and binding
agreement of the Trading Advisor enforceable in accordance with its
terms, subject only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the
enforceability generally of rights of creditors and by general
principals of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and except as
enforceability of the indemnification, exculpation, and contribution
provisions contained in such agreements may be limited by applicable
law or public policy.
(D) To the best of such counsel's knowledge based upon due
inquiry of certain officers of the Trading Advisor, except as
disclosed in the Prospectus or in writing to the General Partner
prior to the Closing, there are no material actions, claims or
proceedings at law or in equity threatened or pending in any court
or before or by any governmental body, administrative agency, panel
or self-regulatory organization, nor have there been any such
actions, claims or proceedings at any time within the five years
preceding the date of the Prospectus to which the Trading Advisor or
any Trading Advisor Principal is or was a party or to which any of
its assets is or was subject, which would be material to an
investor's decision to invest in the Partnership or which might
reasonably be expected to materially adversely affect the condition,
financial or otherwise, or the business of the Trading Advisor,
whether or not arising in the ordinary course of
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business, or impair its ability to discharge its obligations as
described in the Prospectus.
(E) The execution and delivery of this Agreement and the
Management Agreement, the incurrence of the obligations herein and
therein set forth and the consummation of the transactions
contemplated herein, therein and in the Prospectus will not be in
contravention of any of the provisions of the certificate of
incorporation or bylaws of the Trading Advisor and, to the best of
such counsel's knowledge based upon due inquiry of certain officers
of the Trading Advisor, will not constitute a breach of, default
under, or a violation of any instrument or agreement known to such
counsel by which the Trading Advisor is bound, and will not violate
any order, law, rule or regulation applicable to the Trading Advisor
of any court, governmental body, administrative agency, panel or
self-regulatory organization having jurisdiction over the Trading
Advisor.
(F) Based upon reliance on certain SEC No-Action letters, as
of the Closing the performance by the Trading Advisor of its duties
contemplated by the Management Agreement and this Agreement and as
described in the Prospectus will not require the Trading Advisor to
be registered as an "investment adviser" as that term is defined in
the Investment Advisers Act of 1940, as amended.
(G) Nothing has come to such counsel's attention that would
lead them to believe that, (a) the Registration Statement at the
time it became effective, insofar as the Trading Advisor and the
Trading Advisor Principals are concerned, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (b) the Prospectus at the time it was
issued or at the Closing contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein relating to the Trading Advisor or the Trading
Advisor Principals, in light of the circumstances under which they
were made, not misleading; provided, however, that such counsel need
express no opinion or belief as to the financial statements, notes
thereto and other financial or statistical data set forth in the
Registration Statement and Prospectus, except that such counsel
shall opine, without rendering any opinion as to the accuracy of the
information in the
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performance data, that the performance data of the Trading Advisor
set forth in the Prospectus complies as to form in all material
respects with the CEAct and CFTC Rules, except as disclosed in the
Prospectus.
In giving the foregoing opinion, such counsel may rely on
information obtained from public officials, officers of the Trading Advisor, and
other sources believed by it to be responsible and may assume that signatures on
all documents examined by it are genuine.
(viii) Deloitte & Touche L.L.P., independent certified public
accountants for the Partnership and the General Partner, will have
furnished to DWR a letter, dated the date of the Closing and in form and
substance satisfactory to DWR, to the effect that:
(A) Such accountant is an independent certified public
accountant within the meaning of the 1933 Act, the CEAct, the SEC
Regulations and the CFTC Rules with respect to the Partnership and
the General Partner.
(B) In such accountant's opinion, the statements of financial
condition of the Partnership and the General Partner and the notes
thereto included in the Prospectus and examined by it comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act, the CEAct, and the SEC Regulations.
(C) On the basis of limited procedures not constituting an
audit, including inquiries of officials of the General Partner
having responsibility for financial and accounting matters
pertaining to the Partnership, and such other inquiries and
procedures as may be specified in such letter, nothing has come to
such accountant's attention which causes it to believe that, as of a
specified date not more than five business days prior to the date of
the Closing, there has been any decrease in the Net Assets of the
Partnership (as defined in the Limited Partnership Agreement) as
compared to Net Assets set forth in the statement of financial
condition of the Partnership included in the Prospectus, except as
may be disclosed in such letter.
(D) On the basis of limited procedures not constituting an
audit, including a reading of the latest available financial
statements of the General Partner, inspection of the minute book of
the General Partner since the date of the latest audited financial
statements of the General Partner, inquiries of officials of the
General Partner having responsibility for financial and
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accounting matters, and such other inquiries and procedures as may
be specified in such letter, nothing has come to such accountant's
attention that causes it to believe that, as of a specified date not
more than five business days prior to the date of the Closing, there
has been any decrease in the General Partner's net worth as compared
to net worth set forth in the statement of financial condition of
the General Partner included in the Prospectus, except as may be
disclosed in such letter.
(ix) The Commodity Broker shall deliver a certificate to the parties
hereto, in form and substance satisfactory to such parties and dated the
date of the Closing, to the effect that the representations and warranties
of the Commodity Broker contained herein are true and correct with the
same effect as though expressly made at the Closing.
(x) All agreements contemplated herein or in the Registration
Statement or Prospectus shall have been duly executed and delivered.
12. Indemnification.
(a) The Trading Advisor agrees to indemnify, defend, and hold
harmless DWR, the Partnership, the General Partner, and their affiliates and
each of their officers, directors, principals, shareholders, controlling persons
and their respective successors and assigns from and against any loss, claim,
damage, liability, cost, and expense, joint and several or otherwise, to which
any indemnitee may become subject under the 1933 Act, the 1934 Act, the CEAct,
the Blue Sky law of any jurisdiction, or otherwise (including any reasonable
investigatory, legal, and other expense incurred in connection with, and any
amounts paid in, any settlement provided that the Trading Advisor shall have
approved such settlement, and in connection with any administrative
proceedings), in respect of the offer or sale of Units, insofar as such loss,
claim, damage, liability, cost, or expense (or action in respect thereof) arises
out of, or is based upon: (i) a breach by the Trading Advisor of any
representation, warranty, or agreement in this Agreement or any certificate
delivered pursuant to this Agreement or the failure by the Trading Advisor to
perform any covenant made by the Trading Advisor herein; (ii) a material
inaccuracy in the information relating to the Trading Advisor in any Sales
Literature approved in writing by the Trading Advisor; or (iii) a misleading or
untrue statement or alleged misleading or untrue statement of a material fact
made in the Registration Statement or the Prospectus, or an omission or alleged
omission to state a material fact therein which is required to be stated therein
or necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, and such
statement or omission relates specifically to the Trading Advisor or the Trading
Advisor Principals, or was made in reliance upon, and in conformity with,
written information or instructions furnished by the Trading Advisor. The
Trading Advisor will also reimburse any indemnitee for any legal, accounting,
and other expense incurred by such indemnitee in connection with investigating
or defending any loss,
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claim, damage, liability, cost, and expense covered by the indemnities in this
Section 12(a). This indemnity shall not relate to any matter for which the
Trading Advisor would be indemnified under paragraph (b) of this Section 12.
(b) The Partnership and the General Partner agree, jointly and
severally, to indemnify, hold harmless, and defend the Trading Advisor and each
of its officers, directors, principals, shareholders, controlling persons, and
its respective successors and assigns from and against any loss, claim, damage,
liability, cost, and expense, joint and several, to which any indemnitee may
become subject under the 1933 Act, the 1934 Act, the CEAct, the Blue Sky law of
any jurisdiction, or otherwise (including any reasonable investigatory, legal,
and other expense incurred in connection with, and any amounts paid in, any
settlement provided that the Partnership and the General Partner shall have
approved such settlement, and in connection with any administrative
proceedings), in respect of the offer or sale of Units, insofar as such loss,
claim, damage, liability, cost, or expense (or action in respect thereof) arises
out of, or is based upon: (i) a breach by the Partnership or the General Partner
of any representation, warranty, or agreement in this Agreement or any
certificate delivered pursuant to this Agreement or the failure by the
Partnership or the General Partner to perform any covenant made by either of
them herein; or (ii) a misleading or untrue statement or alleged misleading or
untrue statement of a material fact made in the Registration Statement, the
Prospectus, or the Sales Literature, or an omission or alleged omission to state
a material fact therein which is required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus or the Sales
Literature, in light of the circumstances under which they were made) not
misleading, provided that such misleading or untrue statement or alleged
misleading or untrue statement or omission or alleged omission does not relate
to the Trading Advisor or the Trading Advisor Principals, or was not made in
reliance upon, and in conformity with, information or instructions furnished by
the Trading Advisor (provided, however, that with respect to any Sales
Literature, the Partnership and the General Partner shall not be under an
indemnification obligation only with respect to such Sales Literature as shall
have been approved in writing by the Trading Advisor), or does not result from a
breach by the Trading Advisor of any representation, warranty, or agreement in
this Agreement or any certificate delivered pursuant to this Agreement or the
failure by the Trading Advisor to perform any covenant made in this Agreement.
The Partnership will also reimburse any indemnitee for any legal, accounting,
and other expenses incurred by such indemnitee in connection with investigating
or defending any loss, claim, damage, liability, cost, and expense covered by
the indemnities in this Section 12(b). This indemnity shall not apply to any
matter for which the Partnership or the General Partner would be indemnified by
the Trading Advisor under paragraph (a) of this Section 12.
(c) The Partnership agrees to indemnify, defend, and hold
harmless DWR, the General Partner and their affiliates (as defined in Section
14(c) of the Limited Partnership Agreement) from and against any loss,
liability, damage, cost, or expense (including attorneys' and accountants' fees
and expenses incurred in defense of any demands, claims, or lawsuits, and any
amounts paid in any settlement), actually and reasonably incurred arising from
any act, omission, activity or conduct undertaken pursuant to this Agreement by
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or on behalf of the Partnership, including, without limitation, any demands,
claims, or lawsuits initiated by a limited partner of the Partnership (or
assignee thereof), provided that (1) DWR or the General Partner, as applicable,
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
Partnership, and (2) the act, omission, activity, or conduct that was the basis
for such loss, liability, damage, cost, or expense was not the result of
misconduct or negligence. The indemnity in this Section 12(c) is in addition to
any liability that the Partnership may otherwise have and will extend, upon the
same terms and conditions, to each person, if any, who controls an indemnified
person within the meaning of the 1933 Act.
Notwithstanding anything to the contrary contained in
the foregoing, neither DWR, the General Partner nor their affiliates shall be
indemnified by the Partnership for any losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities laws unless
(1) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, (2)
such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (3) a court of
competent jurisdiction approves a settlement of the claims against the
particular indemnitee and finds that indemnification of the settlement and
related costs should be made, provided, with regard to such court approval, the
indemnitee must apprise the court of the position of the SEC and the positions
of the respective securities administrators of Massachusetts, Missouri, and
Tennessee, and/or those other states and jurisdictions in which the plaintiffs
claim that they were offered or sold Units with respect to indemnification for
securities laws violations before seeking court approval for indemnification.
Furthermore, in any action or proceeding brought by a limited partner of the
Partnership in the right of the Partnership to which the General Partner, 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 this Section
12(c). The Partnership shall make advances to the General Partner, DWR or their
affiliates hereunder only if: (1) the demand, claim, or lawsuit relates to the
performance of duties or services by such persons to the Partnership; (2) such
demand, claim, or lawsuit is not initiated by a limited partner of the
Partnership; and (3) such advances are repaid, with interest at the legal rate
under Delaware law, if the person receiving such advance is ultimately found not
to be entitled to indemnification hereunder.
(d) DWR agrees to indemnify, defend and hold harmless the
Partnership, the General Partner, the Trading Manager, and each of their
directors, officers, principals, shareholders, controlling persons and their
respective successors and assigns from and against any loss, claim, demand,
damage, liability, cost, and expense, joint and several, to which any indemnitee
may become subject under the 1933 Act, the 1934 Act, the CEAct, the Blue Sky law
of any jurisdiction, or otherwise (including any reasonable investigatory, legal
or other expenses incurred in connection with, and any amounts paid in, any
settlement provided, that, DWR shall have approved such settlement, and in
connection with any administrative proceedings), in respect of the offer or sale
of Units, insofar as such loss, claim, demand, damage, liability, cost, or
expense (or action in respect thereof) arises out of, or is based upon: (i) a
breach by DWR of any representation, warranty, or agreement in this Agreement
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or any certificate delivered pursuant to this Agreement, or the failure by DWR
to perform any covenant made by DWR herein; or (ii) a misleading or untrue
statement or alleged misleading or untrue statement of a material fact made in
the Registration Statement, the Prospectus or any Sales Literature or an
omission or alleged omission to state a material fact therein which is required
to be stated therein or necessary to make the statements therein (in the case of
the Prospectus and any Sales Literature, in light of the circumstances under
which they were made) not misleading, provided that such statement or omission
relates specifically to DWR, or was made in reliance upon, and in conformity
with, written information or instructions furnished by or on behalf of DWR; or
(iii) a misleading or untrue oral statement or alleged misleading or untrue oral
statement of a material fact made by DWR or its employees in the offer or sale
of Units or an omission or alleged omission by DWR or its employees to state a
material fact which is necessary to make the oral statements made not
misleading; or (iv) a violation of any applicable law, rule, or regulation of
any jurisdiction or regulatory authority resulting from the unlawful use of the
Registration Statement, any preliminary Prospectus, the Prospectus, or any Sales
Literature by DWR or its employees. DWR will also reimburse an indemnitee for
any legal, accounting, and other expenses incurred by the indemnitee in
connection with investigating or defending any loss, claim, demand, damage,
liability, cost, and expense covered by this indemnity. The indemnity in this
Section 12(d) is in addition to any liability that DWR may otherwise have.
(e) Promptly after receipt by an indemnitee of notice of the
commencement of any action, claim, or proceeding to which any subsections of
Section 12 of this Agreement may apply, the indemnitee will notify the
indemnifying party in writing of the commencement thereof if a claim in respect
thereof is to be made against the indemnifying party under any of such
subsections; but the failure to so notify the indemnifying party will not
relieve the indemnifying party from any liability which the indemnifying party
may have to the indemnitee under any of such subsections, except where such
failure has materially prejudiced the indemnifying party. In case any action,
claim, or proceeding is brought against an indemnitee and the indemnitee
notifies the indemnifying party of the commencement thereof as provided above,
the indemnifying party will be entitled to participate therein and, to the
extent that the indemnifying party desires, to assume the defense thereof with
counsel selected by the indemnifying party and not disapproved by the
indemnitee, any such disapproval not to be unreasonable. After notice from the
indemnifying party to the indemnitee of the indemnifying party's election so to
assume the defense thereof as provided above, the indemnifying party will not be
liable to the indemnitee hereunder for any legal and other expenses subsequently
incurred by the indemnitee in connection with the defense thereof, other than
reasonable costs of investigation.
Notwithstanding the preceding paragraph, if, in any
action, claim, or proceeding as to which indemnification is or may be available
under any of Sections 12(a) - (d) hereof, an indemnitee reasonably determines
that its interests are or may be adverse, in whole or in part, to the
indemnifying party's interests or that there may be legal defenses available to
the indemnitee which are inconsistent with the defenses available to the
indemnifying party, the indemnitee may retain its own counsel in connection with
such action,
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claim, or proceeding and will be indemnified by the indemnifying party for any
legal and other expenses reasonably incurred in connection with investigating or
defending such action, claim, or proceeding. In no event, however, will the
indemnifying party be liable for the fees and expenses of more than one counsel
for all indemnitees in connection with any one action, claim, or proceeding or
in connection with separate but similar or related actions, claims, or
proceedings in the same jurisdiction arising out of the same general
allegations. The indemnifying party will not be liable for any settlement of any
action, claim, or proceeding effected without the indemnifying party's express
written consent, but if any action, claim, or proceeding is settled with the
indemnifying party's express written consent or if there is a final judgment for
the plaintiff in any such action, claim, or proceeding, the indemnifying party
will indemnify, defend, and hold harmless an indemnitee as provided in Sections
12(a) - (d) hereof, as applicable.
(f) The exculpation provisions in the Management Agreement,
the Customer Agreement, and the Limited Partnership Agreement shall not relieve
any party thereto from any liability it may have or incur to any party under
this Agreement, nor shall any party thereto be entitled to be indemnified by any
party thereto pursuant to the indemnification provisions contained in such
agreements, against any loss, liability, damage, cost or expense it may incur
under this Agreement.
(g) Notwithstanding anything in this Section 12 to the
contrary, John W. Henry shall have no liability to the Partnership, the General
Partner or DWR under this Agreement or in connection with the transactions
contemplated by this Agreement except for fraud and willful misconduct by John
W. Henry.
13. Termination. The General Partner shall have the right to
terminate this Agreement at any time prior to the Closing by giving written
notice of such termination to DWR and the Trading Advisor.
14. Survival. The respective indemnities, agreements, obligations,
representations, warranties, and other statements of the parties hereto set
forth in this Agreement or in any certificates delivered pursuant hereto will
remain in full force and effect (regardless of any investigation or any
statement as to the results thereof made by, or on behalf of, DWR, the
Partnership, the General Partner, the Trading Advisor, or any officer, director,
controlling person, or agent of any of the foregoing) and will survive the
delivery of and payment for Units and the termination or expiration of this
Agreement, and the Closing.
15. Notices. All notices required or desired to be given under this
Agreement must be in writing and will be effective when given personally on the
date delivered or, when given by mail, on the date of receipt, addressed as
follows (or to such other address as the party entitled to notice hereafter
designates in accordance with the terms hereof):
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if to the Partnership or the General Partner:
Dean Witter Portfolio Strategy Fund L.P.
c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mr. Mark J. Hawley
President
if to the Trading Advisor:
John W. Henry & Company, Inc.
One Glendinning Place
Westport, Connecticut 06880
Attn: Ms. Elizabeth A.M. Kenton
Senior Vice President
if to DWR:
Dean Witter Reynolds Inc.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mr. Mark J. Hawley
Executive Vice President
16. Successors. This Agreement will be binding upon and inure solely
to the benefit of DWR, the Trading Advisor, the Partnership, and the General
Partner (and to the extent provided in Section 12 hereof, the officers,
directors, controlling persons, and agents of the Partnership, the Trading
Advisor, the General Partner, and DWR and the respective heirs, executors,
administrators, successors, and assigns of such persons), and no other person
will acquire or have any rights under or by virtue of this Agreement. No
purchaser of Units will be deemed to be a successor or assign to any party
hereto merely by reason of such purchase.
17. Assignment; Amendment. This Agreement may not be assigned by any
party hereto without the prior express written consent of all other parties.
This Agreement may not be amended except by the express written consent of all
parties hereto.
18. Governing Law; Submission to Jurisdiction; Exclusive
Jurisdiction. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of
conflicts of laws. If any action or proceeding shall be brought by a party to
this Agreement to enforce any right or remedy under this Agreement,
-33-
<PAGE>
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.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
-34-
<PAGE>
If the foregoing Agreement is satisfactory to you, please so indicate by
signing at the place provided below.
DEAN WITTER PORTFOLIO
STRATEGY FUND L.P.
By: Demeter Management
Corporation,
General Partner
By:___________________________________
Mark J. Hawley
President
Accepted and Agreed: DEMETER MANAGEMENT CORPORATION
DEAN WITTER REYNOLDS INC.
By:___________________________________
Mark J. Hawley
President
By:_____________________________
Mark J. Hawley
Executive Vice President JOHN W. HENRY & COMPANY, INC.
By:___________________________________
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<PAGE>
Exhibit 3.02(a)
Certificate of Amendment
To
Certificate of Limited
Partnership
of Dean Witter Principal Secured Futures Fund L.P.
DEAN WITTER PRINCIPAL SECURED FUTURES FUND L.P. (the "Partnership")
a limited partnership formed on August 28, 1990, under the Delaware Revised
Uniform Limited Partnership Act (the "Act") for purposes of amending its
Certificate of Limited Partnership pursuant to Section 17-202 of the Act, hereby
certifies that effective July 11, 1996, Paragraph 1 of the Certificate of
Limited Partnership is amended to read in its entirety as follows:
(1) The name of the Partnership is Dean Witter Portfolio Strategy
Fund L.P.
This Certificate of Amendment was duly executed in accordance with,
and is being filed pursuant to, the provisions of Section 17-202 of the Act.
IN WITNESS WHEREOF, this Certificate of Amendment has been duly
executed by the General Partner of the Partnership duly authorized as of the
24th day of July, 1996.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
By: DEMETER MANAGEMENT CORPORATION
By: /s/ Mark J. Hawley
----------------------------------
Mark J. Hawley
President
<PAGE>
Exhibit 5.01
March 27, 1997
Dean Witter Reynolds Inc.
Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Re: Dean Witter Portfolio Strategy Fund L.P.
Ladies and Gentlemen:
We have acted as your counsel in connection with the organization of
Dean Witter Portfolio Strategy Fund L.P., formerly named Dean Witter Principal
Secured Futures Fund L.P., a Delaware limited partnership (the "Partnership"),
and the preparation and filing with the Securities and Exchange Commission of a
Registration Statement on Form S-1 (the "Registration Statement") relating to
the registration under the Securities Act of 1933, as amended, of 50,000 units
of limited partnership interest of the Partnership ("Units"). In such
connection, we have assisted in the preparation of the Limited Partnership
Agreement of the Partnership and in the preparation and filing with the
Secretary of State of the State of Delaware of the Certificate of Limited
Partnership, each as amended, of the Partnership. We have also examined such
other documents, records, and applicable law as we have deemed necessary or
appropriate for purposes of rendering this opinion.
Based upon the foregoing, we are of the opinion that upon (1) the
sale of the Units described in the Registration Statement in the manner and on
the terms and conditions set forth therein, and (2) the identification of the
purchasers of Units as limited partners on the books and records of the
Partnership, the Units will be validly issued, fully-paid, and non-assessable.
We are also of the opinion that a limited partner's liability for the losses and
obligations of the Partnership solely by reason of such person being a limited
partner of the
<PAGE>
Dean Witter Reynolds Inc.
Demeter Management Corporation - 2 - March 27, 1997
Partnership will not exceed such limited partner's unredeemed capital
contribution, undistributed profits, if any, and any distributions and amounts
received upon redemption of Units with interest thereon.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ CADWALADER, WICKERSHAM & TAFT
CADWALADER, WICKERSHAM & TAFT
<PAGE>
Exhibit 8.01
March 27, 1997
Dean Witter Reynolds Inc.
Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Re: Dean Witter Portfolio Strategy Fund L.P.
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission of a Registration Statement
on Form S-1 (the "Registration Statement") relating to the registration under
the Securities Act of 1933, as amended, of 50,000 units of limited partnership
interest ("Units") of Dean Witter Portfolio Strategy Fund L.P., formerly named
Dean Witter Principal Secured Futures Fund L.P., a Delaware limited partnership
(the "Partnership"). We have also examined such documents, records, and
applicable law as we have deemed necessary for purposes of rendering this
opinion.
Based upon the foregoing, we hereby confirm our opinion under the
heading "Material Federal Income Tax Considerations" in the Prospectus
constituting a part of the Registration Statement (the "Prospectus") that the
Partnership will be taxed as a partnership for federal income tax purposes. We
also confirm our opinion that the descriptions set forth under the heading
"Material Federal Income Tax Considerations" in the Prospectus correctly
describe the material federal income tax consequences to United States taxpayers
who are individuals of acquiring, owning, and disposing of Units.
<PAGE>
Dean Witter Reynolds Inc.
Demeter Management Corporation - 2 - March 27, 1997
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the references made to us in the Prospectus under
the captions "Summary of the Prospectus--Tax Considerations," "Risk Factors --
Taxation and Regulatory Risks," "Purchases by Employee Benefit Plans -- ERISA
Considerations," "Material Federal Income Tax Considerations," "State and Local
Income Tax Aspects," and "Legal Matters."
Very truly yours,
/s/ CADWALADER, WICKERSHAM & TAFT
CADWALADER, WICKERSHAM & TAFT
<PAGE>
Exhibit 10.01
AMENDED AND RESTATED CUSTOMER AGREEMENT
THIS AMENDED AND RESTATED CUSTOMER AGREEMENT (this "Agreement") made
as of the 1st day of September, 1996, by and between DEAN WITTER PORTFOLIO
STRATEGY FUND L.P., a Delaware limited partnership (the "Partnership"), and DEAN
WITTER REYNOLDS INC., a Delaware corporation (the "Broker" or "DWR");
W I T N E S S E T H:
WHEREAS, the Partnership has been organized pursuant to a Limited
Partnership Agreement dated as of August 28, 1990 (which may be amended; the
"Limited Partnership Agreement"), and a Certificate of Limited Partnership filed
in the office of the Secretary of State of the State of Delaware on August 28,
1990, and amended on July 24, 1996 (which may be further amended) with Demeter
Management Corporation, a Delaware corporation ("Demeter" or the "General
Partner"), acting as general partner, to trade, buy, sell, spread or otherwise
acquire, hold, or dispose of commodities (including, but not limited to, foreign
currencies, mortgage-backed securities, money market instruments, financial
instruments, and any other securities or items which are now, or may hereafter
be, the subject of futures contract trading), commodity futures contracts,
commodity forward contracts, foreign exchange commitments, options on physical
commodities and on futures contracts, spot (cash) commodities and currencies,
and any rights pertaining thereto (collectively "futures interests") and
securities (such as United States Treasury securities) approved by the Commodity
Futures Trading Commission (the "CFTC") for investment of customer funds;
<PAGE>
WHEREAS, the Partnership has entered into one or more management
agreements (each, a "Management Agreement") (which may be amended) with one or
more certain trading advisors (each, a "Trading Advisor") which provide that
each such Trading Advisor has authority and responsibility, except in certain
situations specified therein, to direct the investment and reinvestment of the
assets of the Partnership which are allocated to each such Trading Advisor in
futures interests for the period set forth in such Management Agreement;
WHEREAS, the Partnership and the Broker entered into that certain
Customer Agreement, dated as of October 30, 1990 (the "Original Customer
Agreement"), whereby the Broker agreed to perform futures interest brokerage and
certain other services for the Partnership; and
WHEREAS, the Partnership and the Broker wish to amend and restate
the Original Customer Agreement to set forth the terms and conditions upon which
the Broker will continue to perform futures interest brokerage and certain other
services for the Partnership.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Duties of the Broker. The Broker agrees to execute futures
interests brokerage transactions on behalf of the Partnership in accordance with
instructions provided by a Trading Advisor, and the Partnership agrees to retain
the Broker as commodity broker for the term of this Agreement.
-2-
<PAGE>
The Broker agrees to furnish to the Partnership as soon as
practicable all of the information from time to time in its possession which
Demeter, as the general partner of the Partnership, is required to furnish to
the limited partners of the Partnership pursuant to the Partnership's Limited
Partnership Agreement as from time to time in effect, or as required by
applicable law, rules or regulations, and to perform such other services for the
Partnership as are set forth herein and in the Partnership's then 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 Partnership (the "Units"), and in any amendment or supplement to the
Prospectus. Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to such terms in the Prospectus.
Notwithstanding any provision of this Agreement to the contrary, the
Broker shall assume financial responsibility for any error committed by it in
executing or clearing orders for the purchase or sale of futures interests for
the Partnership's account. However, the Broker shall not be responsible for
errors committed by a Trading Advisor. The Broker and each Trading Advisor each
shall have an affirmative obligation to promptly notify the other party of its
own errors.
2. Obligations and Expenses. Except as otherwise set forth herein
and in the Prospectus, the Partnership, and not the Broker, shall be responsible
for all taxes, and all other obligations or expenses of the Partnership,
including, without limitation, brokerage commissions to the Broker, management
and incentive fees to the Trading Advisors, floor brokerage fees, exchange fees,
clearinghouse fees, "give up" or transfer fees, NFA fees,
-3-
<PAGE>
forward contract transaction fees, costs associated with taking delivery of
futures interests, fees for the use of DWR's institutional execution desk and
for overnight execution facilities, and fees for the execution of cash contract
transactions relating to exchange of futures for physicals ("EFP") transactions
(collectively, "transaction fees and costs").
3. Agreement Non-exclusive. The Broker shall be free to render
services of the nature to be rendered to the Partnership hereunder to other
persons or entities in addition to the Partnership, and the parties acknowledge
that the Broker may render such services to additional entities similar in
nature to the Partnership, including without limitation other partnerships
organized with Demeter as their general partner. It is expressly understood and
agreed that this Agreement is non-exclusive and that the Partnership has no
obligation to execute any or all of its trades for futures interests through the
Broker. The parties acknowledge that the Partnership may execute and clear
trades for futures interests through such other broker or brokers as Demeter may
direct from time to time. The Partnership's utilization of one or more
additional commodity brokers shall neither terminate this Agreement nor modify
in any regard the respective rights and obligations of the Partnership and the
Broker hereunder.
4. Compensation of the Broker. The Partnership will pay the Broker
brokerage commissions at a roundturn rate of 80% of the Broker's published
non-member rates for speculative accounts, which covers both the taking and
liquidation of a position. The Partnership will pay separately for all
transaction fees and costs. The Partnership will pay to the Broker a fee for
each roundturn forward contract which will average between $3 and $6
-4-
<PAGE>
per roundturn contract, depending upon the size of the trades. The Broker will
not charge the Partnership a mark-up or spread on such forward trading. The
Broker will charge a transaction fee of approximately $2.50 for each cash
contract transaction relating to an EFP transaction, and will charge for the use
of the institutional execution desk and overnight execution facilities at rates
of up to $3 per roundturn.
The Partnership will pay the Broker brokerage commissions for
currency forward contract transactions at rates established with reference to
the brokerage commission rate charged on exchange-traded currency futures
contracts. The Broker 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.
Brokerage commissions, together with transaction fees and costs,
with respect to the Trading Advisor's allocated Net Assets will be capped at
13/20 of 1% per month (in the event that the Trading Advisor employs multiple
trading systems in trading on behalf of the Partnership, the foregoing cap is
applied on a per trading system basis) of the Partnership's Net Assets
(determined before redemptions and distributions as of month-end) 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 Partnership and (ii)
the net excess interest and compensating balance benefits to DWR, after
crediting the Partnership with interest, shall not exceed 14% annually of the
Partnership's average monthly Net Assets as of the last day of each month during
a calendar
-5-
<PAGE>
year. Any brokerage commissions and transaction fees and costs in excess of such
caps shall be borne or paid by the Broker or an affiliate and shall not be
reimbursed by the Partnership. As long as redemption charges are imposed on
Limited Partners, the foregoing caps may not be increased. Thereafter, none of
such caps may be increased unless Limited Partners are given notice thereof
(including a description of redemption and voting rights of Limited Partners)
and an opportunity to redeem their Units.
If at any time an amount is due and owing to the Broker for services
rendered pursuant to the terms of this Agreement, the Broker shall only have
recourse against the assets of the Partnership.
5. Investment Discretion. The parties recognize that the Broker
shall have no authority to direct the futures interests investments to be made
for the Partnership's account, but shall execute only such orders for the
Partnership's account as the Trading Advisor and the General Partner may direct
from time to time. However, the parties agree that the Broker, and not the
Trading Advisor, shall have the authority and responsibility with regard to the
investment, maintenance, and management of the Partnership's assets that are
held in securities approved by the CFTC for the investment of customer funds or
in cash as provided in Section 6 hereof.
6. Investment of Partnership Funds. The Partnership shall deposit
its assets in a commodity trading account with the Broker. The Partnership's
assets deposited with the Broker will be segregated in accordance with Section
4d(2) of the Commodity Exchange Act and CFTC regulations and will either be
invested in securities approved by the CFTC
-6-
<PAGE>
for investment of customer funds or will be held in non-interest bearing bank
accounts at a bank or banks selected by DWR.
Prior to the date of the Closing (as defined in the Prospectus), the
Broker will credit the Partnership with interest income at month-end in an
amount equal to 80% of the Partnership's average daily Net Assets at a rate
equal to the average yield on 13-week U.S. Treasury Bills issued during such
month. Effective as of the date of the Closing, the Broker will credit the
Partnership at each month-end with interest income as if 80% of the
Partnership's average daily Net Assets for the month were invested at the rate
earned by the Broker on its U.S. Treasury Bill investments with customer
segregated funds. The Broker will retain any interest earned in excess of the
interest paid to the Partnership. All of such funds will be available for margin
for the Partnership's trading. For the purpose of such interest payments, Net
Assets will not include monies due to the Partnership on or with respect to
forward contracts and other futures interests but not actually received by it
from banks, brokers, dealers, and other persons. If the Partnership directly
invests in securities approved by the CFTC for investment of customer funds, the
Partnership will receive the interest on such securities. The Partnership
understands that it will not receive any other interest income on its assets
held by the Broker. The Partnership's assets held by the Broker may be used as
margin solely for the Partnership's trading.
Ownership of the right to receive interest on the Partnership's
assets pursuant to the preceding paragraph shall be reflected and maintained,
and may be transferred only, on the books and records of the Broker. Any
purported transfer of such ownership shall not be
-7-
<PAGE>
effective or recognized until such transfer shall have been recorded on the
books and records of the Broker.
7. Customer Agreements. Upon the request of the Broker, the
Partnership shall execute and deliver to the Broker the Futures Customer
Agreement referred to in Section 16 hereof and annexed hereto and such other
similar documents as the Broker shall reasonably require from time to time.
8. Standard of Liability and Indemnity. Subject to Section 1 hereof,
the Broker and its affiliates (as defined below) shall not be liable to the
Partnership, the Limited Partners, or any of its or their respective successors
or assigns, for any act, omission, conduct, or activity undertaken by the Broker
on behalf of the Partnership which the Broker determines, in good faith, to be
in the best interests of the Partnership, unless such act, omission, conduct, or
activity by the Broker or its affiliates constituted misconduct or negligence.
The Partnership shall indemnify, defend and hold harmless the Broker
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 the Broker on behalf
of the Partnership, including, without limitation, any demands, claims or
lawsuits initiated by a Limited Partner of the Partnership (or assignee
thereof); provided that (i) the Broker 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 Partnership, and (ii) the act, omission,
conduct or activity that was the basis for such loss,
-8-
<PAGE>
liability, damage, cost or expense was not the result of misconduct or
negligence. Notwithstanding the foregoing, no indemnification of the Broker or
its affiliates by the Partnership shall be permitted for any losses, liabilities
or expenses arising from or out of an alleged violation of federal or state
securities laws unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular indemnitee, or (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (iii) a court of competent jurisdiction approves a settlement of the claims
against the particular indemnitee and finds that indemnification of the
settlement and related costs should be made, provided, with regard to such court
approval, the indemnitee must apprise the court of the position of the SEC and
the positions of the respective securities administrators of Massachusetts,
Missouri, Tennessee and/or those other states and jurisdictions in which the
plaintiffs claim that they were offered or sold Units, with respect to
indemnification for securities laws violations before seeking court approval for
indemnification. Furthermore, in any action or proceeding brought by a Limited
Partner in the right of the Partnership to which the Broker 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 Partnership shall
make advances to the Broker 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 Partnership; (ii) such demand, claim, lawsuit or legal
action is not initiated by a Limited Partner; and (iii) such advances are
repaid, with interest at
-9-
<PAGE>
the legal rate under Delaware law, if the person receiving such advance is
ultimately found not to be entitled to indemnification hereunder.
The Broker shall indemnify, defend and hold harmless the Partnership
and its successors or assigns from and against any losses, liabilities, damages,
costs and expenses (including in connection with the defense or settlement of
claims; provided the Broker has approved such settlement) incurred as a result
of the activities of the Broker or its affiliates, provided 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 Partnership to the
Broker 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 the Broker contained
in this Agreement to the extent caused by such event. Likewise, the indemnities
provided in this Section 8 by the Broker to the Partnership 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 Partnership
contained in this Agreement to the extent caused by such event.
As used in this Section 8, the term "affiliate" of the Broker 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 the Broker; (ii) any
partnership, corporation, association, or other legal entity
-10-
<PAGE>
10% or more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote by the Broker; (iii) any natural
person, partnership, corporation, association, or other legal entity directly or
indirectly controlling, controlled by, or under common control with, the Broker;
or (iv) any officer or director of the Broker. Notwithstanding the foregoing,
"affiliates" for purposes of this Section 8 shall include only those persons
acting on behalf of the Broker and performing services for the Partnership
within the scope of the authority of the Broker, 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.
-11-
<PAGE>
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 Partnership:
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attention: Mark J. Hawley
if to the Broker:
DEAN WITTER REYNOLDS INC.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attention: Mark J. Hawley
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
-12-
<PAGE>
time becomes inconsistent with the annexed document, the terms of this Agreement
shall control.
-13-
<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 PORTFOLIO STRATEGY FUND L.P.
By: Demeter Management Corporation,
General Partner
By: __________________________________
Mark J. Hawley
President
DEAN WITTER REYNOLDS INC.
By: __________________________________
Mark J. Hawley
Executive Vice President
-14-
<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
<PAGE>
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:
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(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
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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
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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
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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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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
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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.
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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)
_____________________________________
AUTHORIZATION TO TRANSFER FUNDS:
(Agreement Paragraph 26)
_____________________________________
ACKNOWLEDGEMENT TO SUBORDINATION AGREEMENT
(Agreement Paragraph 27)
_____________________________________
(Required for accounts holding
non-U.S. currency)
================================================================================
HEDGE ELECTION
Customer confirms that all transactions in the Account will |_|
represent bona fide hedging transactions, as defined by the
Commodity Futures Trading Commission, unless DWR is notified
otherwise not later than the time an order is placed for the
Account [check box if applicable]:
Pursuant to CFTC Regulation 190.06(d), Customer specifies and agrees, with
respect to hedging transactions in the Account, that in the unlikely event of
DWR's bankruptcy, it prefers that the bankruptcy trustee [check appropriate
box]:
A. Liquidate all open contracts without first seeking |_|
instructions either from or on behalf of Customer.
B. Attempt to obtain instructions with respect to the |_|
disposition of all open contracts. (If neither box is
checked, Customer shall be deemed to elect A)
======================================================================
ACKNOWLEDGEMENT OF RECEIPT OF RISK DISCLOSURE STATEMENTS
The undersigned each hereby acknowledges its separate receipt from DWR, and its
understanding of each of the following documents prior to the opening of the
account:
o Risk Disclosure Statement for Futures
and Options (in the form prescribed by
CFTC Regulation 1.55(c))
o LME Risk Warning Notice
o Dean Witter Order Presumption for After
Hours Electronic Markets
o NYMEX ACCESS(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
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.
________________________________________________________________________________
CUSTOMER NAME(S)
______________________________________________ _______________________________
AUTHORIZED SIGNATURE(S) DATE
________________________________________________________________________________
(If applicable, print name and title of signatory)
<PAGE>
Exhibit 10.02
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT, made as of
_________, 1997, (this "Agreement") among DEAN WITTER PORTFOLIO STRATEGY FUND
L.P. (formerly, Dean Witter Principal Secured Futures Fund L.P.), a Delaware
limited partnership (the "Partnership"), DEMETER MANAGEMENT CORPORATION, a
Delaware corporation (the "General Partner"), and JOHN W. HENRY & COMPANY, INC.,
a California corporation (the "Trading Advisor").
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to a certificate of
limited partnership dated August 28, 1990 and amended its name pursuant to an
amendment to its certificate of limited partnership on July 24, 1996 (as
amended, the "Certificate of Limited Partnership") and a limited partnership
agreement dated as of August 28, 1990 (as it may be amended from time to time,
the "Limited Partnership Agreement");
WHEREAS, the Partnership has issued units of limited partnership
interest in connection with a public offering pursuant to a Prospectus dated
October 30, 1990 (the "Original Prospectus");
WHEREAS, the Partnership, the General Partner, and the Trading
Advisor entered into a management agreement dated as of October 30, 1990 (the
"Original Management Agreement") whereby the Trading Advisor agreed to provide
certain services to the Partnership in connection with the Partnership's
speculative trading in commodities (including, but not limited to, foreign
currencies, mortgage-backed securities, money market instruments, financial
instruments, and any other securities or items which are now, or may hereafter
be, the subject of futures contract trading), domestic and foreign commodity
futures contracts, commodity forward contracts, foreign exchange commitments,
options on physical commodities and on futures contracts, spot (cash)
commodities and currencies, and any rights pertaining thereto (collectively,
"futures interests") and securities (such as United States Treasury securities)
approved by the Commodity Futures Trading Commission (the "CFTC") for investment
of customer funds and to engage in all other activities incident thereto;
WHEREAS, the Partnership and the General Partner each desire the
Trading Advisor to continue to act as trading advisor for the Partnership and to
continue to make investment decisions with respect to futures interests for the
Partnership and the Trading Advisor desires to so act;
WHEREAS, the Partnership plans to offer additional Units of Limited
Partnership Interest ("Units") for sale to the public as described in a
registration statement on Form S-1, to be filed with the Securities and Exchange
Commission (the "SEC") and as it may
<PAGE>
be amended from time to time (the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Act") and a final prospectus (the
"Prospectus") of the Partnership as filed with the SEC; and
WHEREAS, the Partnership, the General Partner, and the Trading
Advisor wish to amend and restate the Original Management Agreement as set forth
in this Amended and Restated Management Agreement, which, among other things,
sets forth certain terms and conditions upon which the Trading Advisor will
continue to conduct the Partnership's futures interest trading.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Undertakings of the Trading Advisor Relating to the Offering
of Units.
The Trading Advisor shall cooperate with the Partnership and the
General Partner in connection with: (a) (i) their preparation of the
Registration Statement and any preliminary prospectus contained therein, and
(ii) their preparation of the Prospectus, in each case, as deemed necessary or
desirable by the General Partner under the Act; (b) their filings of the
Registration Statement and Prospectus with the SEC, the National Association of
Securities Dealers (the "NASD"), the CFTC and the National Futures Association
(the "NFA"); (c) their filing of the Registration Statement, Prospectus, or
supplementary information relating thereto with appropriate governmental
authorities as part of making applications for registration of the Units under
the securities or Blue Sky laws of such jurisdictions as the General Partner may
deem appropriate and the taking of such other actions, consistent with the
Trading Advisor's current registrations and not inconsistent with this
Agreement, as the General Partner may determine to be necessary or advisable in
order to make the proposed offer and sale of Units lawful in such jurisdictions.
The Trading Advisor shall make all disclosures regarding itself and its
principals, its trading performance and trading approaches (provided, however,
that nothing contained in this Agreement shall require the Trading Advisor to
disclose proprietary information concerning its trading systems, strategies,
methods and programs), its customer accounts, and such other matters as may be
required or advisable under the Act and the Commodity Exchange Act of 1974, as
amended and the rules and regulations thereunder, (the "CEAct"), in the
reasonable judgment of the General Partner, to be made in the Registration
Statement or Prospectus or any amendment or supplement thereof. The Partnership
and the General Partner agree to keep confidential and not disseminate such
details or any other information regarding the trading systems, strategies,
methods and programs for specific trades made by the Trading Advisor to any of
the limited partners of the Partnership or the customers, employees, agents,
shareholders, officers, directors or affiliates of the General Partner of Dean
Witter Reynolds, Inc. ("DWR") or any other person or entity, except such details
as may be, in the reasonable judgment of the
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General Partner, necessary or appropriate for the conduct of the business of the
Partnership or as the latter relates to the Partnership or as required by law.
2. Undertakings of the General Partner Relating to the Offering
of Units.
The General Partner shall use its best efforts to consummate the
public offering of the Units (the "Offering") as contemplated by the
Registration Statement. Notwithstanding the foregoing, the General Partner may:
(a) withdraw the Registration Statement from either or both of the SEC and CFTC
(and, if required, so notify the NASD and NFA); (b) withdraw the applications
filed under the securities or Blue Sky laws of the various jurisdictions from
any or all of such jurisdictions; and (c) terminate the offering or the
registration of Units with the SEC at any time. The foregoing actions shall have
no effect on the Trading Advisor's obligation to continue providing services to
the Partnership pursuant to the terms hereof. The General Partner shall incur no
liability as a result of any actions taken pursuant to this Section 2; provided,
however, that the General Partner shall not be relieved hereby of any liability
that it may incur under other sections of this Agreement.
3. Duties of the Trading Advisor.
(a) The Trading Advisor hereby agrees to continue to act as a
trading advisor for the Partnership and, as such, shall have sole authority and
responsibility for directing the investment and reinvestment of the net assets
(as defined in Section 7(d) of the Limited Partnership Agreement, the "Net
Assets") of the Partnership allocated to it; provided, however, that the General
Partner may override the instructions of the Trading Advisor to the extent
necessary (i) to comply with the trading policies of the Partnership described
in writing to the Trading Advisor and with applicable speculative position
limits, (ii) to fund any distributions, redemptions, or reapportionments among
other trading advisors to the Partnership, (iii) to pay the Partnership's
expenses, (iv) to the extent the General Partner believes doing so is necessary
for the protection of the Partnership, (v) to terminate the futures interests
trading of the Partnership, or (vi) to comply with any applicable law,
regulation, order, judgment, or interpretation, or policy. The General Partner
agrees not to override any such instructions for the reasons specified in
clauses (ii) or (iii) of the preceding sentence unless the Trading Advisor fails
to comply with a request of the General Partner to make the necessary amount of
funds available to the Partnership within five days of such request. The Trading
Advisor shall not be liable for the consequences of any decision by the General
Partner to override instructions of the Trading Advisor, except to the extent
that the Trading Advisor is in breach of this Agreement. In performing services
for the Partnership, the Trading Advisor may not materially alter the trading
programs used by the Trading Advisor in investing and reinvesting the
Partnership's Net Assets in futures interests as described in the Prospectus
without the prior written consent of the General Partner, it being understood
that changes in the futures interests traded on leverage shall not be deemed a
material alteration in the Trading Advisor's trading program(s) employed for the
Partnership.
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(b) The Trading Advisor shall:
(i) Exercise good faith and due care in trading futures
interests for the account of the Partnership in accordance with (a) prohibitions
and trading policies of the Partnership as described in the Prospectus and
otherwise as provided in writing to the Trading Advisor by the General Partner
and (b) the trading systems, programs, and strategies of the Trading Advisor as
described in the Prospectus or such other trading systems, programs, and
strategies of the Trading Advisor as the General Partner and the Trading Advisor
shall agree, with such changes and additions to such trading systems, programs
or strategies as the Trading Advisor, from time to time, incorporates into its
trading approach for accounts the size of the Partnership.
(ii) Subject to reasonable assurances of confidentiality by the
General Partner and the Partnership, provide the General Partner, within 30 days
of a request therefor by the General Partner, with information comparing the
performance of the Partnership's account and the performance of all other client
accounts directed by the Trading Advisor using the trading programs used by the
Trading Advisor for the Partnership over a specified period of time. In
providing such information, the Trading Advisor may take such steps as are
necessary to assure the confidentiality of the Trading Advisor's clients'
identities. The Trading Advisor shall, upon the General Partner's request,
consult with the General Partner concerning any discrepancies between the
performance of such other accounts and the Partnership's accounts. The Trading
Advisor shall promptly inform the General Partner of any material discrepancies
of which the Trading Advisor is aware. The General Partner acknowledges that
different trading strategies or methods may be utilized for different sized
accounts, accounts with different trading policies, accounts experiencing
differing inflows or outflows of equity, timing of orders, accounts which
commence trading at different times, accounts which have different portfolios or
different fiscal years, accounts with different expense and interest
arrangements, that the Trading Advisor offers several different trading programs
and that such differences may cause divergent trading results.
(iii) Upon request of the General Partner and subject to
reasonable assurances of confidentiality by the General Partner and the
Partnership, provide the General Partner with all material information
concerning the Trading Advisor other than proprietary information (including,
without limitation, information relating to changes in control, principals,
trading approach or any materially adverse change in the Trading Advisor's
financial condition). The General Partner acknowledges that all trading
instructions made by the Trading Advisor will be held in confidence by the
General Partner, except to the extent necessary to conduct the business of the
Partnership or as required by law, regulation, order, judgment or interpretive
policy.
(iv) While the Trading Advisor is the sole advisor of the
Partnership, monitor the speculative position limits applicable to the
Partnership's trading so as to prevent the Partnership from exceeding such
limits.
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(v) Inform the General Partner when the Trading Advisor's open
positions maintained by the Trading Advisor exceed the Trading Advisor's
applicable speculative position limits.
(c) All purchases and sales of futures interests pursuant to this
Agreement shall be for the account, and at the risk, of the Partnership and not
for the account, or at the risk, of the Trading Advisor or any of its
stockholders, directors, officers, or employees, or any other person, if any,
who controls the Trading Advisor within the meaning of the Act. All brokerage
fees arising from trading by the Trading Advisor shall be for the account of the
Partnership. The Trading Advisor makes no representations as to whether its
trading will produce profits or avoid losses.
(d) Notwithstanding anything in this Agreement to the contrary, the
Trading Advisor shall assume financial responsibility for any errors committed
or caused by it in transmitting orders for the purchase or sale of futures
interests for the Partnership's account, including, without limitation, payment
to DWR, the commodity broker for the Partnership, of the floor brokerage
commissions, exchange and NFA fees, and other transaction charges and give-up
charges incurred by DWR on such trades but only for the amount of DWR's
out-of-pocket costs in respect thereof. The Trading Advisor's errors shall
include, but not be limited to, inputting improper trading signals or
communicating incorrect orders to DWR. However, the Trading Advisor shall not be
responsible for errors committed or caused by DWR or by floor brokers or by
other futures commission merchants. The Trading Advisor shall have an
affirmative obligation promptly to notify the General Partner of its own errors,
and the Trading Advisor shall use its best efforts to identify and promptly
notify the General Partner of any order or trade which the Trading Advisor
reasonably believes was not executed in accordance with its instructions to DWR
or such other commodity broker utilized to execute orders for the Partnership.
4. Designation of Additional Trading Advisors and Reallocation of
Net Assets.
(a) If the General Partner at any time deems it to be in the best
interests of the Partnership, the General Partner may, upon prior written notice
to the Trading Advisor, designate an additional trading advisor or advisors for
the Partnership and may apportion to such additional trading advisor(s) the
management of such amounts of Net Assets as the General Partner shall determine
in its absolute discretion. The designation of an additional trading advisor and
the apportionment of Net Assets to such trading advisor pursuant to this Section
4 shall neither terminate this Agreement nor modify in any regard the respective
rights and obligations of the Partnership, the General Partner and the Trading
Advisor hereunder with respect to the assets that remain under the management of
the Trading Advisor. In the event that Net Assets are reallocated from the
Trading Advisor, the Trading Advisor shall thereafter receive management and
incentive fees based, respectively, on that portion of the Net Assets managed by
the Trading Advisor and the Trading Profits attributable to the trading by the
Trading Advisor.
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(b) The General Partner may at any time and from time to time upon
two business days' prior notice reallocate Net Assets allocated to the Trading
Advisor to any other trading advisor or advisors of the Partnership or allocate
additional Net Assets upon two business days' prior notice to the Trading
Advisor from such other trading advisor or advisors; provided that any such
addition to or withdrawal from Net Assets allocated to the Trading Advisor will
only take place on the last day of a month unless the General Partner determines
that the best interests of the Partnership require otherwise.
(c) The General Partner shall not, without the consent of the
Trading Advisor, allocate to the Trading Advisor "notional" assets of the
Partnership.
5. Trading Advisor Independent.
For all purposes of this Agreement, the Trading Advisor shall be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized, have no authority to act for or represent the
Partnership in any way or otherwise be deemed an agent of the Partnership.
Nothing contained herein shall be deemed to require the Partnership to take any
action contrary to the Limited Partnership Agreement, the Certificate of Limited
Partnership of the Partnership as from time to time in effect (the "Certificate
of Limited Partnership"), or any applicable law or rule or regulation of any
regulatory body, exchange, or board. Nothing herein contained shall constitute
the Trading Advisor and the Partnership or the General Partner as members of any
partnership, joint venture, association, syndicate or other entity, or, except
as specifically provided otherwise in this Agreement, be deemed to confer on any
of them any express, implied, or apparent authority to incur any obligation or
liability on behalf of any other. It is expressly agreed that the Trading
Advisor is neither a promoter, sponsor or issuer with respect to the
Partnership, nor does the Trading Advisor have any authority or responsibility
with respect to the sale or issuance of Units.
6. Commodity Broker.
The Trading Advisor shall effect all transactions in commodity
interests for the Partnership through, and shall maintain a separate account
with, such commodity broker or brokers as the General Partner shall direct. At
the present time, DWR shall act as commodity broker for the Partnership. The
General Partner will instruct DWR to provide the Trading Advisor with copies of
brokerage statements. Notwithstanding that DWR shall act as commodity broker for
the Partnership, the Trading Advisor may execute trades through floor brokers
other than those employed by DWR so long as arrangements are made for such floor
brokers to "give-up" or transfer the positions to DWR and provided that the
rates to be charged by such floor brokers have been approved in advance by DWR.
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<PAGE>
7. Fees.
(a) Management Fee. The Partnership shall pay to the Trading Advisor
a management fee equal to 1/3 of 1% per month (a 4% annual rate) of the
Partnership's Net Assets (as defined in the Limited Partnership Agreement)
allocated to the Trading Advisor as of the last day of each month (before
deduction of the management fee, any accrued incentive fee and any redemptions,
distributions or reallocations as of the end of such month).
If during any month after the Partnership commences trading
operations (including the month in which the Partnership commences such
operations), the Partnership does not conduct the business operations or
suspends trading, or, as a result of an act or material failure to act by the
Trading Advisor, the Trading Advisor does not provide its services on any
trading day then the management fee described above payable to the Trading
Advisor will be prorated based on the ratio of the number of trading days in the
month in which the Partnership engaged in trading operations or, as appropriate,
in which the Trading Advisor provided its services to the total number of
trading days in such month. If this Agreement is terminated on a date other than
the end of a calendar month, the management fee described above shall be
determined as if such date were the end of a calendar month, but such fee shall
be prorated based on the ratio of the number of trading days in the month
through the date of termination to the total number of trading days in the
month.
(b) Quarterly Incentive Fee. The Partnership shall pay a quarterly
incentive fee with respect to the Net Assets of the Partnership allocated to the
Trading Advisor equal to 15% of the "Trading Profits" (as defined below) as of
the end of each calendar quarter; provided, however, that if the Closing (as
defined in the Prospectus) is as of the first business day after a month-end
that is not the end of a calendar quarter, and if at such Closing an incentive
fee has accrued on Trading Profits, the accrued incentive fee shall become due
and be paid to the Trading Advisor on such closing date even if it does not
coincide with the end of a calendar quarter.
If this Agreement is terminated on a date other than the end of a
calendar quarter, the incentive fee described above shall be determined as if
such date were the end of a calendar quarter. Any accrued incentive fees with
respect to Units redeemed at the end of a month which is not the end of a
calendar quarter will be deducted and paid to the Trading Advisor at the time of
redemption, and "Trading Profits" with respect to such Units will not be
included for purposes of determining incentive fees thereafter. The quarterly
incentive fee will be charged against the Net Assets allocated to each of the
Trading Advisor's trading programs based upon the portion of the "Trading
Profits" for the quarter generated by each trading program.
As used herein, the term "Trading Profits" shall mean net futures
interests trading profits (realized and unrealized) earned on the Net Assets
allocated to the Trading Advisor, including interest income credited to the
Partnership by DWR on its assets held in its futures interest account with DWR,
decreased by monthly management fees, brokerage commissions, floor brokerage
fees, "give up" of transfer fees, NFA fees, other transaction
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fees and costs, administrative expenses, and other fees and expenses (excluding
incentive fees payable) of the Partnership; with such Trading Profits and items
of decrease determined from the last date as of which such incentive fee was
earned by the Trading Advisor or, if no incentive fee has been earned previously
by the Trading Advisor, from the date that the Partnership commenced trading to
the end of the calendar quarter as of which such incentive fee calculation is
being made. Extraordinary expenses of the Partnership, if any, will not be
deducted in determining Trading Profits.
If any payment of incentive fees is made to the Trading Advisor on
account of Trading Profits earned on the Net Assets allocated to the Trading
Advisor and the Trading Advisor thereafter fails to earn Trading Profits or
experiences losses for any subsequent calendar quarter, the Trading Advisor
shall be entitled to retain such amounts of incentive fees previously paid to
the Trading Advisor in respect of such Trading Profits. However, no subsequent
incentive fees shall be payable to the Trading Advisor until the Trading Advisor
has again earned Trading profits; provided, however, that if Net Assets
allocated to the Trading Advisor are increased or reduced because of
subscriptions, redemptions, distributions, or reallocations which occur at the
end of, or subsequent to, a month in which the Trading Advisor experiences a
futures interest trading loss, the trading loss that must be recovered before
the Net Assets allocated to the Trading Advisor will be deemed to experience
Trading Profits will be equal to (i) the amount of the unrecovered trading loss
multiplied by (ii) a fraction the numerator of which shall be the Net Assets
allocated to the Trading Advisor immediately after such subscriptions
redemptions, distributions or reallocations, and the denominator of which shall
be the Net Assets allocated to the Trading Advisor immediately before such
redemptions, distributions or reallocations.
(c) The Partnership will remit the management and incentive fees to
the Trading Advisor as soon as practicable, but in no event later than 30 days,
in the case of the management fee, or 45 days in the case of any incentive fee,
of the month-end as of which they are due, together with an itemized statement
showing the calculations.
8. Term.
This Agreement shall continue in effect for a period of two years
after the date of the Closing. At least ninety days prior to the expiration of
such two-year period, the Trading Advisor may terminate this Agreement by
providing written notice to the Partnership indicating that the Trading Advisor
desires to terminate such Agreement at the end of such two-year period. If the
Agreement is not terminated upon the expiration of the three-year period this
Agreement shall automatically renew for an additional one-year period and shall
continue to renew for additional one-year periods until this Agreement is
otherwise terminated, as provided for herein. At least ninety days prior to the
expiration of any such one-year period, the Trading Advisor may terminate this
Agreement at the end of the current one-year period by providing written notice
to the Partnership indicating that the Trading Advisor desires to terminate such
Agreement at the end of such one-year period. This Agreement shall terminate if
the Partnership terminates. The Partnership shall have the right to terminate
this
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Agreement at its discretion (a) at any month end upon 5 days' prior written
notice to the Trading Advisor, or (b) at any time specified in written notice to
the Trading Advisor upon the occurrence of any of the following events: (i) if
John W. Henry ceases for any reason to be a principal of the Trading Advisor;
(ii) if the Trading Advisor becomes bankrupt or insolvent; (iii) if the Trading
Advisor is unable to use its trading programs or methods as in effect on the
date hereof and as refined and modified in the future for the benefit of the
Partnership; (iv) if the registration, as a commodity trading advisor, of the
Trading Advisor with the CFTC or its membership in the NFA is revoked,
suspended, terminated, or not renewed, or limited or qualified in any respect;
(v) except as provided in Section 13 hereof, if the Trading Advisor merges or
consolidates with, or sells or otherwise transfers its advisory business, or all
or a substantial portion of its assets, any portion of its futures interests
trading programs or methods, or its good will to, any individual or entity; (vi)
if the amount of the Trading Advisor's allocated Net Assets shall decline from
the amount of the allocated Net Assets immediately following the Closing (after
adjusting for subscriptions, distributions, redemptions, or reallocations, if
any) by 50% or more as a result of trading losses; (vii) if, at any time, the
Trading Advisor violates any trading or administrative policy as described in
the Prospectus or as set forth in writing to the Trading Advisor by the General
Partner, except with the prior express written consent of the General Partner;
or (viii) if the Trading Advisor fails in a material manner to perform any of
its obligations under this Agreement. The Trading Advisor may terminate this
Agreement at any time, upon 30 days prior written notice to the Partnership, in
the event: (i) that the General Partner imposes additional trading limitation(s)
in the form of one or more trading policies or administrative policies which the
Trading Advisor does not agree to follow in its management of its allocable
share of the Partnership's Net Assets; (ii) the General Partner objects to the
Trading Advisor implementing a proposed material change in the Trading Advisor's
trading program(s) or method(s) used by the Partnership and Trading Advisor
certifies to the General Partner in writing that it believes such change is in
the best interests of the Partnership; (iii) the General Partner overrides a
trading instruction of the Trading Advisor for reasons unrelated to a
determination by the General Partner that the Trading Advisor has violated the
Partnership's trading policies and the Trading Advisor certifies to the General
Partner in writing that as a result, the Trading Advisor believes the
performance results of the Trading Advisor relating to Partnership will be
materially adversely affected; (iv) the Partnership materially breaches this
Agreement and does not correct the breach within 10 days of receipt of a written
notice of such breach from the Trading Advisor; (v) the Partnership's Net
Assets, as of the close of business (as determined by the General Partner) on
any day, decline to $5,000,000 or less; or (vi) the Trading Advisor has amended
its trading programs used for the Partnership to include a foreign futures or
option contract which may lawfully be traded by the Partnership under CFTC
regulations and counsel, mutually acceptable to the parties, has not opined that
such inclusion would cause adverse tax consequences to Limited Partners and the
General Partner does not consent to the Trading Advisor's trading such contract
for the Partnership within 5 business days of a written request by the Trading
Advisor to do so, and, if such consent is given, does not make arrangements to
facilitate such trading within 30 days of such notice.
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The indemnities set forth in Section 9 hereof shall survive any
termination of this Agreement.
9. Standard of Liability; Indemnifications.
(a) Limitation of Trading Advisor Liability. In respect of the
Trading Advisor's role in the futures interests trading of the Partnership's
assets, none of the Trading Advisor, or its controlling persons, its affiliates,
and their respective directors, officers, shareholders, employees or controlling
persons shall be liable to the Partnership or the General Partner or their
partners, officers, shareholders, directors or controlling persons except that
the Trading Advisor shall be liable for acts or omissions of any such person
provided that such act or omission constitutes a breach of this Agreement or a
representation, warranty or covenant herein, misconduct or negligence or is the
result of any such person not having acted in good faith and in the reasonable
belief that such actions or omissions were in, or not opposed to, the best
interests of the Partnership.
(b) Trading Advisor Indemnity in Respect of Management Activities.
The Trading Advisor shall indemnify, defend and hold harmless the Partnership
and the General Partner, their controlling persons, their affiliates and their
respective directors, officers, shareholders, employees, and controlling persons
from and against any and all losses, claims, damages, liabilities (joint and
several), costs, and expenses (including any reasonable investigatory, legal,
and other expenses incurred in connection with, and any amounts paid in, any
settlement; provided that the Trading Advisor shall have approved such
settlement) incurred as a result of any action or omission involving the
business or activities undertaken by the Trading Advisor pursuant to this
Agreement (including the Original Management Agreement); provided that such
liability arises from an act or omission of the Trading Advisor, or any of its
controlling persons or affiliates or their respective directors, officers,
partners, shareholders, or employees which is found by a court of competent
jurisdiction upon entry of a final judgment (or, if no final judgment is
entered, by an opinion rendered by counsel who is approved by the Partnership
and the Trading Advisor, such approval not to be unreasonably withheld) to be a
breach of this Agreement (including the Original Management Agreement) or a
representation, warranty or covenant herein or in the Original Management
Agreement, the result of bad faith, misconduct or negligence, or conduct not
done in good faith in the reasonable belief that it was in, or not opposed to,
the best interests of the Partnership. The termination of any demand, claim,
lawsuit, action or proceeding by settlement shall not, in itself, create a
presumption that the conduct in question was not undertaken in good faith in a
manner reasonably believed to be in, or not opposed to, the best interest of the
Partnership.
(c) Partnership and General Partner Indemnity in Respect of
Management Activities. The Partnership and the General Partner shall, jointly
and severally, indemnify, defend, and hold harmless the Trading Advisor, its
controlling persons, their affiliates and their respective directors, officers,
shareholders, employees, and controlling persons, from and against any and all
losses, claims, damages, liabilities (joint and several), costs, and expenses
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(including any reasonable investigatory, legal, and other expenses incurred in
connection with, and any amounts paid in, any settlement; provided that the
General Partner and the Partnership shall have approved such settlement)
resulting from a demand, claim, lawsuit, action, or proceeding (other than those
incurred as a result of claims brought by or in the right of an indemnified
party) relating to the business or activities undertaken by the Trading Advisor
pursuant to this Agreement (including the Original Management Agreement) or a
breach of this Agreement (including the Original Management Agreement) by the
General Partner or the Partnership or a breach of a representation, warranty or
covenant herein or in the Original Management Agreement by the General Partner
or Partnership; provided that a court of competent jurisdiction upon entry of a
final judgment finds (or, if no final judgment is entered, an opinion is
rendered to the General Partner and the Partnership by independent counsel
reasonably acceptable to both parties) to the effect that the action or inaction
of such indemnified party that was the subject of the demand, claim, lawsuit,
action, or proceeding did not constitute negligence, misconduct, or a breach of
this Agreement (including the Original Management Agreement) by the Trading
Advisor or any of its controlling persons, their affiliates or their respective
directors, officers, shareholders, employees or controlling persons or a
representation, warranty or covenant of the Trading Advisor herein or in the
Original Management Agreement and was done in good faith and in a manner such
indemnified party reasonably believed to be in, or not opposed to, the best
interests of the Partnership. The termination of any demand, claim, lawsuit,
action or proceeding by settlement shall not, in itself, create a presumption
that the conduct in question was not undertaken in good faith in a manner
reasonably believed to be in, or not opposed to, the best interest of the
Partnership.
(d) Notwithstanding anything in the above to the contrary, John W.
Henry shall have no liability to the General Partner or the Partnership under
this Agreement (including the Original Management Agreement) or in connection
with the transactions contemplated by this Agreement (including the Original
Management Agreement) except for fraud and willful misconduct by John W. Henry.
(e) The foregoing agreements of indemnity shall be in addition to,
and shall in no respect limit or restrict, any other remedies which may be
available to an indemnified person.
(f) Promptly after receipt by an indemnified person of notice of the
commencement of any action, claim, or proceeding to which any of the indemnities
may apply, the indemnified person will notify the indemnifying party in writing
of the commencement thereof if a claim in respect thereof is to be made against
the indemnifying party hereunder; but the omission so to notify the indemnifying
party will not relieve the indemnifying party from any liability which the
indemnifying party may have to the indemnified person hereunder, except where
such omission has materially prejudiced the indemnifying party. In case any
action, claim, or proceeding is brought against an indemnified person and the
indemnified person notifies the indemnifying party of the commencement thereof
as provided above, the indemnifying party will be entitled to participate
therein and, to the extent that the indemnifying party desires, to assume the
defense
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thereof with counsel selected by the indemnifying party and not unreasonably
disapproved by the indemnified person. After notice from the indemnifying party
to the indemnified person of the indemnifying party's election so to assume the
defense thereof as provided above, the indemnifying party will not be liable to
the indemnified person under the indemnity provisions hereof for any legal and
other expenses subsequently incurred by the indemnified person in connection
with the defense thereof, other than reasonable costs of investigation.
Notwithstanding the preceding paragraph, if, in any action, claim,
or proceeding as to which indemnification is or may be available hereunder, an
indemnified person reasonably determines that its interests are or may be
adverse, in whole or in part, to the indemnifying party's interests or that
there may be legal defenses available to the indemnified person which are
inconsistent with the defenses available to the indemnifying party, the
indemnified person may retain its own counsel in connection with such action,
claim, or proceeding and will be indemnified by the indemnifying party for any
legal and other expenses reasonably incurred in connection with investigating or
defending such action, claim, or proceeding.
In no event will the indemnifying party be liable for the fees and
expenses of more than one counsel for all indemnified persons in connection with
any one action, claim, or proceeding or in connection with separate but similar
or related actions, claims, or proceedings in the same jurisdiction arising out
of the same general allegations. The indemnifying party will not be liable for
any settlement of any action, claim, or proceeding effected without the
indemnifying party's express written consent, but if any action, claim, or
proceeding is settled with the indemnifying party's express written consent or
if there is a final judgment for the plaintiff in any such action, claim, or
proceeding, the indemnifying party will indemnify, defend, and hold harmless an
indemnified person as provided in this Section 9.
(g) The exculpation provisions in the selling agreement among the
Partnership, General Partner, DWR, and Trading Advisor dated as of _______, 1997
(the "Selling Agreement") shall not relieve any party thereto from any liability
it may have or incur to any party under this Agreement. Neither shall any party
to Selling Agreement be entitled to be indemnified by any party thereto,
pursuant to the indemnification provisions contained in the Selling Agreement,
against any loss, liability, damage, cost or expense it may incur under this
Agreement.
10. Right to Advise Others and Uniformity of Acts and Practices.
(a) The Trading Advisor is engaged in the business of advising
investors as to the purchase and sale of futures interests. During the term of
this Agreement, the Trading Advisor, its principals and affiliates, will be
advising other investors (including affiliates and the stockholders, officers,
directors, and employees of the Trading Advisor and its affiliates and their
families) and trading for their own accounts. However, under no circumstances
shall the Trading Advisor by any act or omission favor any account advised or
managed by the
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<PAGE>
Trading Advisor over the account of the Partnership in any way or manner (other
than by charging different management and/or incentive fees). The Trading
Advisor agrees to treat the Partnership in a fiduciary capacity to the extent
recognized by applicable law, but, subject to that standard, the Trading Advisor
or any of its principals or affiliates shall be free to advise and manage
accounts for other investors and shall be free to trade on the basis of the same
trading programs, methods, or strategies employed by the Trading Advisor for the
account of the Partnership, or trading programs, methods, or strategies which
are entirely independent of, or materially different from, those employed for
the account of the Partnership, and shall be free to compete for the same
futures interests as the Partnership or to take positions opposite to the
Partnership, where such actions do not knowingly or deliberately prefer any of
such accounts over the account of the Partnership.
(b) The Trading Advisor shall not be restricted as to the number or
nature of its clients, except that: (i) so long as the Trading Advisor acts as a
trading advisor for the Partnership, neither the Trading Advisor nor any of its
principals or affiliates shall hold knowingly any position or control any other
account which would cause the Partnership, the Trading Advisor, or the
principals or affiliates of the Trading Advisor to be in violation of the CEAct,
any applicable rule or regulation of the CFTC or any other regulatory body,
exchange, or board; and (ii) neither the Trading Advisor nor any of its
principals or affiliates shall render trading advice to any other individual or
entity or otherwise engage in activity which shall knowingly cause positions in
futures interests to be attributed to the Trading Advisor under the rules or
regulations of the CFTC or any other regulatory body, exchange, or board so as
to require the significant modification of positions taken or intended for the
account of the Partnership; provided that the Trading Advisor may modify its
trading programs, methods, or strategies to accommodate the trading of
additional funds or accounts. If applicable speculative position limits are
exceeded by the Trading Advisor in the opinion of (i) independent counsel (who
shall be other than counsel to the Partnership), (ii) the CFTC, or (iii) any
other regulatory body, exchange, or board, the Trading Advisor and its
principals and affiliates shall promptly liquidate positions in all of their
accounts, including the Partnership's account, as to which positions are
attributed to the Trading Advisor as nearly as possible in proportion to the
accounts' respective amounts available for trading (taking into account
different degrees of leverage and "notional" equity) to the extent necessary to
comply with the applicable position limits.
11. Representations, Warranties, and Covenants of the Trading
Advisor.
(a) Representations and Warranties of the Trading Advisor. The
Trading Advisor with respect to itself and each of its principals represents and
warrants to and agrees with the General Partner and the Partnership as follows:
(i) The Trading Advisor is duly organized, validly existing and
in good standing as a corporation under the laws of the state of its
incorporation and is qualified to do business as a foreign corporation and in
good standing in each other jurisdiction in which the nature or conduct of its
business requires such qualification and the failure to so qualify
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<PAGE>
would materially adversely affect the Trading Advisor's ability to perform its
duties under this Agreement. The Trading Advisor has full corporate power and
authority to perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Trading Advisor and is a valid and
binding agreement of the Trading Advisor enforceable in accordance with its
terms.
(iii) Each of the Trading Advisor and each "principal" of the
Trading Advisor, as defined in Rule 3.1 under the CEAct, has all federal and
state governmental, regulatory and exchange licenses and approvals and has
effected all filings and registrations with federal and state governmental and
regulatory agencies required to conduct its or his business and to act as
described in this Agreement. The Trading Advisor is registered as a commodity
trading advisor under the CEAct and is a member of the NFA in such capacity.
(iv) The execution and delivery of this Agreement, the
incurrence of the obligations set forth herein, the consummation of the
transactions contemplated herein and in the Prospectus and the payment of the
fees hereunder will not violate, or constitute a breach of, or default under,
the certificate of incorporation or bylaws of the Trading Advisor or any
agreement or instrument by which it is bound or of any order, rule, law or
regulation binding on it of any court or any governmental body or administrative
agency or panel or self-regulatory organization having jurisdiction over it.
(b) Covenants of the Trading Advisor. The Trading Advisor covenants
and agrees that:
(i) It will exercise good faith and due care in using its
trading programs on behalf of the Partnership as described in the Prospectus (as
modified from time to time) or any other trading programs of the Trading Advisor
to which a portion of the Partnership's Net Assets are allocated.
(ii) The Trading Advisor shall follow, at all times, the
Trading Policies of the Partnership (as described in the Prospectus) and as
amended in writing and furnished to the Trading Advisor from time to time.
(iii) The Trading Advisor shall trade only in futures and
option contracts traded on U.S. contract markets, foreign currency forward
contracts traded with DWR, and such other futures interests which are approved
in writing by the General Partner.
(iv) The Trading Advisor shall use its best efforts to
maintain all registrations and memberships necessary for the Trading Advisor to
continue to act as described herein and to at all times comply in all material
respects with all applicable laws, rules, and regulations, to the extent that
the failure to so comply would have a materially adverse effect on the Trading
Advisor's ability to act as described herein.
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(v) The Trading Advisor shall inform the General Partner
immediately as soon as the Trading Advisor or any of its principals becomes the
subject of any investigation, claim or proceeding of any regulatory authority
having jurisdiction over such person or becomes a named party to any litigation
materially affecting the business of the Trading Advisor. The Trading Advisor
shall also inform the General Partner immediately if the Trading Advisor or any
of its officers becomes aware of any breach of this Agreement by the Trading
Advisor.
12. Representations, Warranties and Covenants of the General
Partner and the Partnership.
(a) Representations and Warranties. The General Partner and the
Partnership represent and warrant to the Trading Advisor, as follows:
(i) The Partnership is a limited partnership duly organized
pursuant to the Certificate of Limited Partnership, the Limited Partnership
Agreement and the Delaware Revised Uniform Limited Partnership Act ("DRULPA")
and is validly existing under the laws of the State of Delaware with full power
and authority to engage in the trading of futures interests and to engage in its
other contemplated activities as described in the Prospectus; the Partnership
has received a certificate of authority to do business in the State of New York
as provided by Article 8-A of the New York Revised Limited Partnership Act and
is qualified to do business in each jurisdiction in which the nature or conduct
of its business requires such qualification and where failure to be so qualified
could materially adversely affect the Partnership's ability to perform its
obligations hereunder.
(ii) The General Partner is duly organized and validly
existing and in good standing as a corporation under the laws of the State of
Delaware and in good standing and qualified to do business as a foreign
corporation under the laws of the State of New York and is qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature or conduct of its business requires such qualification and
where the failure to be so qualified could materially adversely affect the
General Partner's ability to perform its obligations hereunder.
(iii) The Partnership and the General Partner have full
partnership or corporate power and authority under applicable law to conduct
their business and to perform their respective obligations under this Agreement.
(iv) This Agreement has been duly and validly authorized,
executed and delivered by the General Partner on behalf of the Partnership and
the General Partner and constitutes a valid, binding and enforceable agreement
of the Partnership and the General Partner in accordance with its terms.
(v) The execution and delivery of this Agreement, the
incurrence of the obligations set forth herein and the consummation of the
transactions contemplated herein
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<PAGE>
will not violate, or constitute a breach of, or default under, the General
Partner's certificate of incorporation, bylaws, the Certificate of Limited
Partnership, or the Limited Partnership Agreement or any agreement or instrument
by which either the General Partner or the Partnership, as the case may be, is
bound or any order, rule, law or regulation applicable to the General Partner or
the Partnership of any court or any governmental body or administrative agency
or panel or self-regulatory organization having jurisdiction over the General
Partner or the Partnership.
(b) Covenants of the General Partner. The General Partner covenants
and agrees that:
(i) The General Partner shall use its best efforts to maintain
all registrations and memberships necessary for the General Partner to continue
to act as described herein and in the Prospectus and to all times comply in all
material respects with all applicable laws, rules, and regulations, to the
extent that the failure to so comply would have a materially adverse effect on
the General Partner's ability to act as described herein and in the Prospectus.
(ii) The General Partner shall inform the Trading Advisor
immediately as soon as the General Partner or any of its principals becomes the
subject of any investigation, claim, or proceeding of any regulatory authority
having jurisdiction over such person or becomes a named party to any litigation
materially affecting the business of the General Partner. The General Partner
shall also inform the Trading Advisor immediately if the General Partner or any
of its officers become aware of any breach of this Agreement by the General
Partner.
(iii) The Partnership will furnish to the Trading Advisor
copies of the Registration Statement, the Prospectus, and all amendments and
supplements thereto, in each case as soon as available.
13. Merger or Transfer of Assets of Trading Advisor.
The Trading Advisor may merge or consolidate with, or sell or
otherwise transfer its advisory business, or all or a substantial portion of its
assets, any portion of its commodity trading systems or methods, or its
goodwill, to any entity that is directly or indirectly controlled by,
controlling, or under common control with, the Trading Advisor, provided that:
(i) the Trading Advisor provides written notice to the General Partner at least
30 days before the effective date of such merger, consolidation, sale, or
transfer; and (ii) such entity expressly assumes all obligations of the Trading
Advisor under this Agreement and agrees to continue to operate the business of
the Trading Advisor, substantially as such business is being conducted on the
date hereof.
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14. 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.
15. Assignment.
This Agreement may not be assigned by any party hereto without the
express written consent of the other parties hereto.
16. Amendment.
This Agreement may not be amended except by the written consent of
the parties hereto.
17. Severability.
The invalidity or unenforceability of any provision of this
Agreement or any covenant herein contained shall not affect the validity or
enforceability of any other provision or covenant hereof or herein contained and
any such invalid provision or covenant shall be deemed to be severable.
18. Disclosure Documents.
(a) During the term of this Agreement, the Trading Advisor
shall furnish to the General Partner promptly copies of all disclosure documents
filed with the CFTC or NFA by the Trading Advisor. The General Partner
acknowledges receipt of the Trading Advisor's disclosure document dated August
__, 1996. Failure to provide a disclosure document shall not constitute breach
of this Agreement unless the Trading Advisor fails to provide a document within
7 days of a request.
(b) The General Partner and the Partnership will not
distribute or supplement any promotional material relating to the Trading
Advisor unless the Trading Advisor has received reasonable prior notice of and a
copy of such promotional material and has not reasonably objected thereto in
writing.
19. Notices.
All notices required 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
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registered or certified mail, postage prepaid, return receipt requested, on the
second business day following the day on which it is so mailed, 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 Partnership:
Dean Witter Portfolio Strategy Fund L.P.
c/o Demeter Management Corporation
2 World Trade Center
62nd Floor
New York, New York 10048
if to the General Partner:
Demeter Management Corporation
2 World Trade Center
62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
if to the Trading Advisor:
John W. Henry & Company, Inc.
One Glendinning Place
Westport, Connecticut 06880
Attn: Elizabeth Kenton
20. 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.
21. Governing Law.
This Agreement shall be governed by, and construed in accordance
with, the law of the State of New York. 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.
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<PAGE>
22. Remedies.
In any action or proceeding arising out of any of the provisions of
this Agreement, the Trading Advisor agrees not to seek any prejudgment equitable
or ancillary relief. The Trading Advisor agrees that its sole remedy in any such
action or proceeding shall be to seek actual monetary damages for any breach of
this Agreement.
23. Headings.
Headings to sections herein are for the convenience of the parties
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
24. Counterparts.
This Agreement may be executed in counterparts, each of which shall
be deemed an original but all of which together shall constitute but one and the
same instrument.
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 PORTFOLIO STRATEGY FUND L.P.
by Demeter Management Corporation,
General Partner
By________________________________
DEMETER MANAGEMENT CORPORATION
By________________________________
JOHN W. HENRY & COMPANY, INC.
By________________________________
<PAGE>
Exhibit 10.04
ESCROW AGREEMENT
_______, 1997
The Chase Manhattan Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Attn: Mr. Paul Gilkeson
Re: Dean Witter Portfolio Strategy Fund L.P.
Escrow Account
Gentlemen:
In accordance with arrangements made by Demeter Management
Corporation, a Delaware corporation (the "General Partner"), on behalf of Dean
Witter Portfolio Strategy Fund L.P. (the "Partnership"), and Dean Witter
Reynolds Inc., the selling agent for the Partnership (the "Depositor"; the
Partnership and the Depositor being herein sometimes collectively referred to as
the "Parties" or, individually, as a "Party"), the Depositor shall: (i) deliver
to you, as Escrow Agent, all subscription funds (by the direct transfer of
immediately available funds into the non-interest bearing escrow account
established by you for the Partnership, for investment in your interest bearing
money market account) received by the Depositor from each subscriber
("Subscriber" or, collectively, the "Subscribers") during the "Offering Period"
(as described in the Partnership's Prospectus, as the same may be updated,
supplemented, and amended from time to time (the "Prospectus")) in connection
with the offering to the public of Units of Limited Partnership Interest of the
Partnership (the "Units"), and (ii) promptly transmit to the General Partner a
complete report of all funds deposited with you. You, as Escrow Agent, shall
hold such subscription funds together with any additions, substitutions, or
other financial instruments in which such funds may be invested or for which
such funds may be exchanged (collectively referred to herein as the "Fund"), IN
ESCROW upon the following terms:
1. (a) Following receipt by you of written notice from the General
Partner that the General Partner has rejected a Subscriber's subscription, in
whole or in part, during the Offering Period, you shall transmit to the
Depositor, as soon as practicable but in no event later than three business days
following receipt by you of such notice, the amount of such Subscriber's
subscription funds that shall have been deposited with you hereunder and
<PAGE>
that the General Partner shall have notified you have been rejected and any
interest earned on the Fund and allocated to the rejected amount of such
subscription in accordance with Section 2 hereof. You shall at the same time
give notice to the Depositor of the amount of aggregate subscription funds
and/or interest so returned.
(b) On the second business day before the scheduled closing
(as defined in the Prospectus, the "Closing") during the Offering Period (the
Closing is currently scheduled to be held on October 1, 1997), the General
Partner shall notify you of the portion of the Fund that represents
subscriptions to be accepted by the General Partner for the Partnership equal to
the number of Units subscribed for multiplied by a price per Unit equal to 100%
of the Net Asset Value thereof as of the close of business on the last day of
the month immediately preceding the Closing. Upon receipt by you of joint
written notice from the General Partner and the Depositor on the date of the
Closing or thereafter to the effect that all of the terms and conditions with
respect to the release of subscription funds from escrow set forth in the
Prospectus have been fulfilled, you shall promptly pay and deliver to the
Partnership the portion of the Fund specified in the General Partner's prior
instructions (excluding any interest earned on the Fund and funds relating to
rejected subscriptions).
(c) On the date of the Closing, or as soon thereafter as
practicable, you shall transmit to the Depositor an amount representing: (i) for
each Subscriber whose subscription shall be accepted by the General Partner in
whole or in part, any interest earned on the Fund and allocated to the accepted
portion of such Subscriber's subscription in accordance with Section 2 hereof,
and (ii) for each Subscriber whose subscription shall have been rejected by the
General Partner in whole or in part but whose subscription funds shall not have
been previously returned to the Depositor by you in accordance with the first
paragraph of this Section 1, such Subscriber's subscription funds that shall
have been deposited with you hereunder and that shall have been rejected by the
General Partner, and any interest earned on the Fund and allocated to the
rejected amount of such subscription in accordance with Paragraph 2 hereof. You
shall at the same time give notice to the Depositor of the aggregate amount of
subscription funds and/or interest so returned
(d) Notwithstanding subparagraph (a) of this Paragraph 1, upon
receipt by you during the Offering Period of written notice from the General
Partner that a Subscriber has been rejected (because good funds representing
payment for Units have not been deposited in a Subscriber's customer account
with the Depositor or because such Subscriber has provided bad funds in the form
of a bad check, draft, or otherwise to the Depositor), you shall transmit to the
Depositor, within three business days following receipt by you of such notice,
the amount of subscription funds deposited with you hereunder relating to that
amount (the portion of such Subscriber's subscription for which good funds have
not been provided) together with any interest earned on the Fund and allocated
to such portion of such a subscription in accordance with Paragraph 2 hereof to
the date of such return, and shall immediately notify the General Partner of the
return of such funds.
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<PAGE>
2. You shall hold the Fund (including any interest earned thereon)
for the account of the Partnership pending delivery to either the Partnership or
the Depositor, pursuant to Paragraphs 1 or 3 hereof, as the case may be. On each
day that subscription funds are transferred to you hereunder in immediately
available funds and receipt is confirmed before 2:00 P.M., New York City time,
you shall immediately invest such subscription funds solely in your interest
bearing money market account. If subscription funds are transferred to you in
immediately available funds and receipt is confirmed after 2:00 P.M., New York
City time, you shall so invest such funds on the next day. Interest earned on
the Fund shall be allocated by the Depositor among the Subscribers
proportionately based on (A) the amount of their respective subscriptions on
deposit in the Fund and (B) the period of time from the date that their
respective subscriptions shall have been deposited in the Fund to the earlier of
the delivery of the Fund to the Partnership at the Closing or the Depositor in
accordance with Sections 1 or 3 hereof, as the case may be.
3. If, during the Offering Period, you are notified in writing
jointly by the Parties that the offering of Units for the Partnership has been
terminated, and that no Closing will be held, you shall transmit to the
Depositor, as soon as practicable but in no event later than three business days
after receipt by you of such notice, an amount representing the full amount of
all subscription funds that shall have been deposited with you hereunder,
together with any interest earned on the Fund in accordance with Paragraph 2
hereof. You shall at the same time give notice to the Depositor of the aggregate
amounts of subscription funds and/or interest so returned.
4. The Parties further agree with you as follows:
(a) Your duties and responsibilities shall be limited solely
to those expressly set forth in this Agreement and are ministerial in nature.
You shall neither be subject to nor obliged to recognize any other agreement
between, or other direction or instruction of, any or all of the Parties or any
Subscriber even though reference thereto may be made herein; provided, however,
that with your written consent, this Agreement may be amended at any time or
times by an instrument in writing signed by the Parties.
(b) You are authorized, in your sole discretion, to disregard
any and all notices or instructions given by any of the Parties or by any other
person, firm, or corporation, except only such notices or instructions as are
hereunder provided for and orders or process of any court entered or issued with
or without jurisdiction. If the Fund or any part thereof is at any time
attached, garnished, or levied upon under any court order or in case the
payment, assignment, transfer, conveyance, or delivery of the Fund shall be
stayed or enjoined by any court order, or in case any order, judgment, or decree
shall be made or entered by any court affecting the Fund or any part thereof,
then and in any such event you are authorized, in your sole discretion, to rely
upon and comply with any such order, writ, judgment, or decree that you are
advised by legal counsel of your own choosing is binding upon you, and if you
comply with any such order, writ, judgment, or decree you shall not be liable to
any of the Parties or to any other person, firm, or corporation by reason of
such compliance even though
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<PAGE>
such order, writ, judgment, or decree may be subsequently reversed, modified,
annulled, set aside, or vacated.
(c) You shall be fully protected in relying upon any written
notice, demand, certificate, document, or instrument believed by you in good
faith to be genuine and to have been signed or presented by the proper person or
persons or Party or Parties. The Parties shall provide you with a list of
officers and employees who shall be authorized to deliver instructions
hereunder. You shall not be liable for any action taken or omitted by you in
connection herewith in good faith and in the exercise of your own best judgment.
(d) Should any dispute arise with respect to the delivery,
ownership, right of possession, and/or disposition of the subscription funds
deposited with you hereunder, or should any claim be made upon any such
subscription funds by a third party, you, upon receipt of written notice of such
dispute by any of the Parties or by a third party, are authorized and directed
to retain in your possession all or any of such subscription funds until such
dispute shall have been settled either by mutual agreement of the parties
involved or by final order, decree, or judgment of any court in the United
States.
(e) If for any reason funds are deposited in the escrow
account other than by transfer of immediately available funds, you shall proceed
as soon as practicable to collect checks, drafts, and other collection items at
any time deposited with you hereunder. All such collections shall be subject to
the usual collection agreement regarding items received by your commercial
banking department for deposit or collection; provided, however, that if any
check, draft, or other collection item at any time deposited with you hereunder
is returned to you as being uncollectible (except by reason of an account
closing), you shall attempt a second time to collect such item before returning
such item to the Depositor as uncollectible. Subject to the foregoing, you shall
promptly notify the Parties of any uncollectible check, draft, or other
collection item deposited with you hereunder and shall promptly return such
uncollectible item to the Depositor, in which case you shall not be liable to
pay any interest on the subscription funds represented by such uncollectible
item. In no event, however, shall you be required or have a duty to take any
legal action to enforce payment of any check or note deposited hereunder.
(f) You shall not be responsible for the sufficiency or
accuracy of the form, execution, validity, or genuineness of documents now or
hereafter deposited with you hereunder, or for any lack of endorsement thereon
or for any description therein, nor shall you be responsible or liable in any
respect on account of the identity, authority, or rights of the persons
executing or delivering or purporting to execute or deliver any such document,
or endorsement or this Agreement. You shall not be liable for any loss sustained
as a result of any investment made pursuant to the instructions of the Parties
or as a result of any liquidation of an investment prior to its maturity or the
failure of the Parties to give you any instructions to invest or reinvest the
Fund or any earnings thereon.
(g) All notices required or desired to be delivered hereunder
shall be in writing and shall be effective when delivered personally on the day
delivered, or when
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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 Partnership or the General Partner:
Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mr. Mark J. Hawley
President
if to the Depositor:
Dean Witter Reynolds Inc.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mr. Mark J. Hawley
Executive Vice President
in either case with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attn: Edwin L. Lyon, Esq.
if to you:
The Chase Manhattan Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Attn: Mr. Paul Gilkeson
Whenever, under the terms hereof, the time for giving a notice or performing an
act falls on a Saturday, Sunday, or legal holiday, such time shall be extended
to the next business day.
(h) The Depositor agrees to indemnify, defend, and hold you
harmless from and against, any and all loss, damage, tax, liability, and expense
that may be incurred by you arising out of or in connection with your duties
hereunder, except as caused by your gross negligence, bad faith, or willful
misconduct, including the legal costs and expenses of defending yourself against
any claim or liability in connection with your performance hereunder.
(i) You shall be paid by the Depositor a single fee of $3,000
in advance for your services with respect to the first year from the date hereof
or any portion
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thereof in connection herewith. In addition, the Depositor shall pay an
additional $3,000 fee for any services provided hereunder in any subsequent
year.
(j) It is understood that you may at any time resign hereunder
as Escrow Agent by giving written notice of your resignation to the Parties at
their address set forth above at least 20 days prior to the date specified for
such resignation to take effect, and upon the effective date of such
resignation, all property then held by you hereunder shall be delivered by you
to such person as may be designated jointly by the Parties in writing, whereupon
all your obligations hereunder shall cease and terminate. If you shall resign
prior to the conclusion of the first 60 days of the Offering Period, you shall
pay back to the Depositor an amount equal to the product of $50 and the number
of days remaining until the 60th day of the Offering Period. If you shall resign
at or after the conclusion of the first 60 days of the Offering Period, you
shall have no obligation to pay any amount back to the Depositor. If no
successor Escrow Agent has been appointed or has accepted such appointment by
such date, all your obligations hereunder shall nevertheless cease and
terminate. Your sole responsibility thereafter shall be to keep safely all
property then held by you and to deliver the same to a person designated by the
Parties hereto or in accordance with the directions of a final order or judgment
of a court of competent jurisdiction.
5. This Agreement shall be governed by and construed in accordance
with the law of the State of New York and any action brought hereunder shall be
brought in the courts of the State of New York, sitting in the County of New
York.
6. The undersigned Escrow Agent hereby acknowledges and agrees to
hold, deal with, and dispose of, the Fund (including any interest earned
thereon) and any other property at any time held by the Escrow Agent hereunder
in accordance with this Agreement.
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<PAGE>
If the foregoing Agreement is satisfactory to you, please so indicate by signing
at the place provided below.
Sincerely,
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
By: Demeter Management Corporation
By:________________________________
Mark J. Hawley
President
DEAN WITTER REYNOLDS INC.
By:________________________________
Mark J. Hawley
Executive Vice President
Accepted:
THE CHASE MANHATTAN BANK
By:________________________
P.J. Gilkeson
Vice President
<PAGE>
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of our report dated
February 17, 1997 relating to the financial statements of Dean Witter Portfolio
Strategy Fund L.P., and our report dated February 17, 1997 relating to the
statements of financial condition of Demeter Management Corporation appearing in
the Prospectus, which is part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/S/ DELOITTE & TOUCHE LLP
New York, New York
March 25, 1997
