<PAGE>
DEAN WITTER SELECT FUTURES FUND L.P.
60,000 UNITS OF LIMITED PARTNERSHIP INTEREST
----------------
Dean Witter Select Futures 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 EMC Capital Management, Inc., Rabar Market Research,
Inc., and Sunrise Capital Management, Inc. (individually, a "Trading Advisor"
collectively; the "Trading Advisors"), to engage in futures interests trading on
behalf of the Partnership. The Partnership commenced futures interests trading
on August 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 applicable closing set forth below. Units
will be issued at the first closing (the "First Closing"), which is currently
scheduled to be held on December 2, 1996; provided, however, that the General
Partner may at its discretion hold such First Closing at any time during the
Offering Period (as defined herein). Units that remain unsold following the
First Closing may be offered for sale, in the sole discretion of the General
Partner, at a second closing, if any (the "Second Closing"), currently scheduled
to be held on January 2, 1997. Units that remain unsold following the Second
Closing may be offered for sale, in the sole discretion of the General Partner,
at a third closing, if any (the "Third Closing"), currently scheduled to be held
on February 3, 1997. 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 21).
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
Advisors and DWR. The Partnership must earn estimated annual net
trading profits of 7.06% of its annual average 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 40 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.
Units redeemed at or prior to the end of the twenty-fourth month
following the closing at which an investor first purchased Units
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 Advisors, 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
collective performance of the Trading Advisors.
-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.
- --------------------------------------------------------------------------------
<PAGE>
THE DATE OF THIS PROSPECTUS IS OCTOBER 17, 1996.
<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 each 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 applicable 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 applicable
closing for each Unit sold by them and issued at such closing. Commencing
with the eighth month following the closing at which a Unit is issued 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 August 1991 through August 1996, such
compensation resulted in average annual payments of $37 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 Advisors 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 December 31, 1995 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 First Closing. Units that remain unsold following the
First Closing may be offered for sale, in the sole discretion of the General
Partner, for a period from the date of the First Closing to the date of the
Second Closing, if any. Units that remain unsold following the Second
Closing may be offered for sale, in the sole discretion of the General
Partner, for a period from the date of the Second Closing to the date of the
Third Closing, if any (the period from the date of this Prospectus through
February 13, 1997 will be referred to herein as the "Offering Period"). The
General Partner may, in its discretion, extend the Offering Period to
provide for additional closings for the sale of Units, but in no event will
the Offering Period be extended beyond March 10, 1997. In the event of any
such extension, the term "Offering Period" shall be deemed to include such
additional closings. 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 Chase Manhattan
Bank, New York, New York (the "Escrow Agent") until the applicable 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 a closing and not rejected may be held in escrow until the
next closing. See "Plan of Distribution."
(3) DWR paid $665,132 in connection with the organization of the Partnership and
the prior offerings 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
and second offerings of Units. The Partnership will not reimburse DWR for
any portion of the costs so incurred or any offering expense (estimated to
be $875,000 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
35 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 40.
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 Advisors........................ 3
Risk Factors................................ 4
Conflicts of Interest....................... 6
Description of Charges to the Partnership... 6
Redemptions................................. 8
Distributions............................... 8
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 Advisors...... 17
Taxation and Regulatory Risks............... 20
Conflicts of Interest......................... 21
Relationship of the General Partner to the
Commodity Broker........................... 21
Accounts of Affiliates of the General
Partner, the Trading Advisors and DWR...... 22
Management of Other Accounts by the Trading
Advisors................................... 22
Customer Agreement with DWR................. 23
Other Commodity Pools....................... 23
Fiduciary Responsibility...................... 23
Performance Record of the Partnership......... 25
Selected Financial Data....................... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Description of Charges to the Partnership..... 35
1. The Trading Advisors..................... 36
2. Dean Witter Reynolds Inc................. 38
3. Other.................................... 39
4. Break Even Analysis...................... 40
Investment Program, Use of Proceeds and
Trading Policies............................. 41
Capitalization................................ 45
The General Partner........................... 45
Directors and Officers of the General
Partner.................................... 46
The Futures, Options and Forward Markets...... 48
Futures Contracts........................... 48
Forward Contracts........................... 48
Options on Futures.......................... 48
Hedgers and Speculators..................... 49
Commodity Exchanges......................... 49
Speculative Position Limits................. 50
Daily Limits................................ 51
Regulations................................. 51
Margins..................................... 52
General Description of Trading Approaches..... 53
The Trading Advisors.......................... 55
<CAPTION>
PAGE
<S> <C>
Introduction................................ 55
EMC Capital Management, Inc................. 55
Rabar Market Research, Inc.................. 58
Sunrise Capital Management, Inc............. 59
The Commodity Broker.......................... 63
Description of the Commodity Broker......... 63
Brokerage Arrangements...................... 63
Certain Litigation............................ 64
The Management Agreements..................... 65
Term........................................ 65
Liability and Indemnification............... 65
Obligations to the Partnership.............. 65
Redemptions................................... 66
The Limited Partnership Agreement............. 67
Nature of the Partnership................... 67
Management of Partnership Affairs........... 67
Additional Offerings........................ 68
Sharing of Profits and Losses............... 68
Restrictions on Transfers or Assignments.... 69
Amendments; Meetings........................ 69
Indemnification............................. 70
Reports to Limited Partners................. 70
Plan of Distribution.......................... 71
Subscription Procedure........................ 73
Purchases by Employee Benefit Plans--ERISA
Considerations............................... 74
Material Federal Income Tax Considerations.... 76
Introduction................................ 76
Partnership Status.......................... 76
Partnership Taxation........................ 76
Cash Distributions and Redemptions.......... 77
Gain or Loss on Trading Activity............ 77
Taxation of Limited Partners................ 80
Tax Audits.................................. 83
State and Local Income Tax Aspects............ 83
Potential Advantages.......................... 84
Legal Matters................................. 86
Experts....................................... 86
Additional Information........................ 86
Glossary...................................... 87
Certain Terms and Definitions............... 87
Blue Sky Glossary........................... 88
Dean Witter Select Futures 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--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 OCTOBER 17, 1996.
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 December 31,
1995, 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 IRAs), (ii) the
proceeds from the redemption of five units (or two units in the case of IRAs)
from commodity pools other than the Spectrum Series, or (iii) the proceeds from
the redemption of 500 units (200 units in the case of IRAs) from one of the
Spectrum Series of commodity pools. 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.
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 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 Select Futures 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 Advisors.
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. As a group,
the Trading Advisors employ a variety of trading systems in an effort to achieve
this objective, and may from time to time, in their discretion, modify their
trading systems and add to and delete from the Partnership's portfolio
additional futures interests. See "Investment Program, Use of Proceeds and
Trading Policies -- Trading Policies" and "The Trading Advisors."
Based upon the fees and expenses of the Partnership, the Partnership will be
required to earn estimated annual net trading profits of 7.06% of the
Partnership's annual average Net Assets (after taking into account estimated
interest income based upon current rates of 5%) in order to avoid depletion or
exhaustion of the Partnership's assets. See "Description of Charges to the
Partnership." Investors should see "Break Even Analysis" on page 40 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 March 21, 1991
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, which was held on August 1, 1991.
The Partnership initially offered 75,000 Units through a public offering, in
which Units were sold for $1,000 at the initial closing, and at 100% of Net
Asset Value ($938.03) at a supplemental closing (the initial closing and
supplemental closing, hereinafter, the "Initial Offering"). During the Initial
Offering, the Partnership accepted $60,268,482 and issued 60,853.334 Units. In
accordance with the Limited Partnership Agreement, the General Partner
contributed $630,000 (635.284 General Partnership Units) to the Partnership. The
Partnership had a second offering of Units in October 1993 (the "Second
Offering"). Units were offered at a price equal to 100% of the Net Asset Value
of a Unit on the last day of the month immediately preceding the closing
($1,567.26). During the Second Offering, the Partnership accepted
$116,617,865.93 and issued 74,408.337 Units. In accordance with the Limited
Partnership Agreement, the General Partner contributed $1,050,000 (669.960
General Partnership Units) to the Partnership.
2
<PAGE>
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 August 1, 1991. The actual
performance record of the Partnership from the commencement of trading through
August 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"). See "Conflicts of Interest," "The General
Partner," and "The Commodity Broker." The Trading Advisors make all trading
decisions in respect of the funds of the Partnership, except that the General
Partner may override the instructions of any Trading Advisor and make trading
decisions under certain circumstances. See "The Management Agreements." The
General Partner is or has been the general partner and commodity pool operator
of 28 commodity pools, three of which have terminated. The General Partner had,
in the aggregate, approximately $950 million of net assets under management as
of August 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."
THE TRADING ADVISORS
The trading advisors for the Partnership are EMC Capital Management, Inc.
("EMC"), Rabar Market Research, Inc. ("Rabar"), and Sunrise Capital Management,
Inc. ("Sunrise") (formerly Sunrise Commodities, Inc.), (individually, a "Trading
Advisor"; collectively, the "Trading Advisors"). Subject to certain limitations,
the Trading Advisors have authority and responsibility for directing the
investment and reinvestment in futures interests of their allocated shares of
the Partnership's Net Assets. See "The Management Agreements." 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 collective success of the respective trading
approaches of the Trading Advisors.
3
<PAGE>
The assets of the Partnership are traded pursuant to technical trading
systems developed by the Trading Advisors. Technical systems formulate trading
decisions on an analysis of prior historical patterns of price movements and
other market indicators such as volume and market behavior. The trading programs
of EMC and Sunrise are pure technical systems. Rabar's trading program is also a
technical system, but incorporates analysis of key fundamental factors,
particularly for risk control purposes. See "The Trading Advisors--EMC Capital
Management, Inc.--Description of EMC's Trading Approach," "--Rabar Market
Research, Inc.--Description of Rabar's Trading Approach," and "--Sunrise Capital
Management, Inc.--Description of Sunrise's Trading Approach." See also "The
Futures, Options and Forward Markets."
Immediately following each closing, the General Partner anticipates
allocating the proceeds of such closing to the management of the Trading
Advisors in equal proportions. The General Partner, however, has the discretion
to reallocate Net Assets among EMC, Rabar, and Sunrise. See "The Management
Agreements--Allocation and Reallocation of the Partnership's Net Assets."
The Trading Advisors are not affiliated with the General Partner or DWR. See
"The Trading Advisors" and "The Management Agreements."
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 and an
investor may lose 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 7.06% of its annual average 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. The Partnership had net trading losses
in 1996 year-to-date, 1994 and 1992. See "Performance Record of
the Partnership."
-Restricted investment liquidity in the Units, absence of a
secondary market, ability to assign or transfer restricted,
redemptions 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 Advisors 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
trading advisors.
RISKS RELATED TO THE TRADING ADVISORS
-The Partnership will not be profitable unless the Trading
Advisors are collectively successful with their trading
strategies.
-Market factors may adversely affect or require modifications to a
Trading Advisor's strategy.
-Management Agreements may not be renewed, may be renewed on less
favorable terms to the Partnership, or may be terminated by a
Trading Advisor such that a Trading Advisor will no longer be
available to the Partnership.
-Reallocation of assets among the Trading Advisors could result in
an increase in assets to a Trading Advisor who may subsequently
incur trading losses.
-Substantial increase in assets allocated to a Trading Advisor may
adversely affect its performance.
-The Trading Advisors' primarily technical trading systems have
inherent limitations.
-Increases in the use of technical trading systems 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."
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<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 Advisors 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 Advisors and DWR, and
individuals and entities associated with the General Partner, the Trading
Advisors and DWR, may trade futures interests for their own accounts, which
trading may compete with the Partnership for positions; that trading by the
Trading Advisors for their own accounts and for other customers could result in
application of position limits to restrict 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 Advisors may compete with the Partnership. See
"Conflicts of Interest," "The Trading Advisors," "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 and Use of
Proceeds," "The Commodity Broker," and "The Management Agreements."
<TABLE>
<CAPTION>
RECIPIENT FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
The Trading Monthly Management Fee to each Trading A flat rate of 1/4 of 1% of each Trading
Advisors Advisor. Advisor's allocated Net Assets as of the
last day of each month (a 3% annual rate).
Quarterly Incentive Fee to each Trading 17 1/2% of the Trading Profits experienced
Advisor. with respect to each Trading Advisor's
allocated Net Assets 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 of the
Partnership's Net Assets allocated to each
Trading Advisor as of the last day of each
month (a maximum 7.8% annual rate); and
(ii) 14% annually of the Partnership's
average monthly Net Assets, aggregated
with net excess interest and compensating
balance benefits, and transaction fees and
costs, as described below.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
RECIPIENT FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------- -------------------------------------------- --------------------------------------------
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 relating to EFP
execution of cash contract transactions transactions are approximately $2.50 per
relating to exchange of futures for cash contract, and charges for the use of
physicals ("EFP") transactions, and the the institutional trading desk or
use of DWR's institutional and overnight overnight execution facility are up to $3
execution facilities. 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 0.80% 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 annual trading profits (after taking into account
estimated interest income based upon current rates of 5%) of 7.06% of the
Partnership's annual average Net Assets in order to avoid depletion or
exhaustion of the assets of the Partnership. 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 trading profits (after taking into
account estimated interest income based upon current rates of 5%) of 10.16% of
the Partnership's annual average Net Assets. This assumes that each Trading
Advisor's gross profits equal expenses, such that no incentive fees are earned
by the Trading Advisors. For the actual fees and expenses paid by the
Partnership during fiscal year 1995, see "Description of Charges to the
Partnership."
REDEMPTIONS
A Limited Partner may require the Partnership to redeem all or part of such
Limited Partner's Units effective as of, but not before, the last day of the
sixth month-end following the closing at which such person first becomes a
Limited Partner, in the manner described herein. Thereafter, Units may be
redeemed as of the end of any month. However, any Units redeemed at the end of
the twelfth, eighteenth, or twenty-fourth month following the closing at which
such Units were issued 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
December 31, 1995 and purchases Units will not be subject to the redemption
charges or restrictions under the circumstances described herein. 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. 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 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. An investor who purchases $500,000 or
more of Units will not be subject to the redemption charges described above.
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" and "Subscription Procedure."
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
8
<PAGE>
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
60,853.334 Units were sold to the public during the Partnership's Initial
Offering. The Partnership sold an additional 74,423.953 Units during the Second
Offering. The Partnership is currently offering up to 60,000 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, or (iii) the proceeds from
the redemption of 500 units (200 units in the case of IRAs) from one of the
Spectrum Series of commodity pools. 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. 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 Select Futures 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 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 applicable 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 Advisors 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
9
<PAGE>
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
applicable closing set forth below. Units will be issued at the First Closing,
which is currently scheduled to be held on December 2, 1996; provided, however,
that the General Partner may at its discretion hold such First Closing at any
time during the Offering Period (as defined below). Units that remain unsold
following the First Closing may be offered for sale, in the sole discretion of
the General Partner, at a Second Closing, currently scheduled to be held on
January 2, 1997. Units that remain unsold following the Second Closing may be
offered for sale, in the sole discretion of the General Partner, at a Third
Closing, currently scheduled to be held on February 3, 1997. The General Partner
shall have the discretion to terminate the offering of Units at any time. The
period from the date of this Prospectus through February 13, 1997 will be
referred to herein as the "Offering Period." The General Partner may, in its
discretion, extend the Offering Period to provide for an additional closings for
the sale of Units, but in no event will the Offering Period be extended beyond
March 10, 1997. In the event of any such extension, the term "Offering Period"
shall be deemed to include such additional closings.
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, Chase Manhattan Bank (the "Escrow Agent"), as described above,
until the General Partner either rejects such subscription prior to the
applicable closing or accepts such subscription at such closing.
The General Partner, DWR, and the Trading Advisors, 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 Second Offering of the Partnership,
and will pay all of the costs incurred in connection with this offering of
Units, estimated to be approximately $875,000 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 applicable
closing for each Unit sold by them and issued at such 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 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.
10
<PAGE>
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 First 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 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
11
<PAGE>
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."
12
<PAGE>
RISK FACTORS
In addition to the Risk Disclosure Statement appearing at the beginning of
this Prospectus, prospective subscribers should consider the following risks
before subscribing for Units.
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
Partnership's trading from August 1991 through August 1996 and the allocation of
assets among the Trading Advisors, forward contracts are expected to, on
average, comprise approximately 5-10% 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 a 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 Advisors 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
Partnership's trading from August 1991 through August 1996 and the allocation of
assets among the Trading Advisors, trading on foreign exchanges is expected to,
on average, comprise approximately 25-30% 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 which it does business for clients, DWR does not have
the
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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.
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 some of
the Trading Advisors have included options in their 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--Off-Balance Sheet
Risk."
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 each Trading
Advisor and its principals will be combined for position limit purposes, to the
extent they may be applicable. In this connection, the Management Agreements
provide that if speculative position limits are exceeded by a Trading Advisor in
the opinion of independent counsel, the CFTC or any regulatory body, exchange,
or board, such Trading Advisor and its principals and affiliates will promptly
liquidate positions in all of their accounts, including the Partnership's
account, as to which positions are attributed to the Trading
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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 Agreements." Rabar and EMC believe that established
position limits, where applicable, restrict their contemplated trading for
clients, including the Partnership, and, from time to time, the trading approach
or instructions of the Trading Advisors for the Partnership 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 Advisors." 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, 1995, 1994 and 1993, the
Partnership had total revenues of $69,299,562, $17,420,402 and $42,931,325,
respectively, and total expenses of $30,245,447, $27,233,309, and $16,539,113,
respectively. Because the incentive fee which the Partnership will pay to each
Trading Advisor will be 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. Moreover, because incentive fees are determined and
paid separately for each Trading Advisor, the Partnership may be required to pay
an incentive fee to one or two Trading Advisors in any given quarter due to the
Trading Profits experienced by such Trading Advisors' allocated Net Assets in
spite of losses or lack of any Trading Profits experienced by one or both of the
other Trading Advisors' allocated Net Assets or by the Partnership's Net Assets
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 at which such person first becomes a Limited Partner, 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
full 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. 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 may
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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 to select successful Trading Advisors for the
Partnership. The selection by the General Partner of the Trading Advisors
involved numerous considerations. The General Partner evaluated the performance
record of each Trading Advisor and determined which Trading Advisors were
suitable for the Partnership's overall trading approach, trading policies and
investment objectives. The General Partner reviewed other aspects of each
Trading Advisor (including the prospective Trading Advisor's trading system,
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 Trading Advisors for the Partnership.
Although the General Partner carefully weighed the above factors in making its
selections, other factors not considered by the General Partner may also be
important. In the future, the General Partner may be required to terminate and
replace a Trading Advisor by reason of its poor performance or for other reasons
or to retain additional Trading Advisors for the Partnership and similar
judgments will have to be made from time to time.
RISKS RELATING TO THE TRADING ADVISORS
RELIANCE ON THE TRADING ADVISORS TO TRADE SUCCESSFULLY. Futures interests
trading decisions for the Partnership will be made by the Trading Advisors, upon
whose judgment and abilities the success of the Partnership will largely depend.
No assurance can be given that the respective trading systems and strategies
utilized by the Trading Advisors will prove successful under all or any market
conditions.
MARKET FACTORS MAY ADVERSELY INFLUENCE TRADING STRATEGIES. 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 a
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 strategies of the Trading Advisors to
function over time. Further, a Trading Advisor may alter its strategies 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 strategies used by
a Trading Advisor in the future may be different from those presently in use.
LIMITED TERM OF MANAGEMENT AGREEMENTS MAY LIMIT ACCESS TO A TRADING
ADVISOR. The Management Agreements with the Trading Advisors will continue in
effect for two years from the date of First Closing. Thereafter, the Trading
Advisors may terminate the Management Agreements on 30 days' prior written
notice to the Partnership. In addition, each Management Agreement is terminable
by the Partnership at any time without penalty on 15 days' prior written notice
and in certain other
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circumstances, and is terminable by the Trading Advisors at any time under
certain circumstances. See "The Management Agreements." Upon the expiration or
termination of a 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 a 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.
USING MULTIPLE TRADING ADVISORS MAY ADVERSELY AFFECT THE PARTNERSHIP'S
PERFORMANCE. The Trading Advisors make trading decisions for the Partnership
independent of each other. Thus, there is the possibility that the Partnership
could hold opposite positions in the same or similar futures interests at the
same time or during the same period of time, with no net change in its holdings.
The General Partner has not undertaken to determine if such trading has
occurred, or is likely to occur, or its potential effect on performance. There
is also the possibility that EMC, Rabar, and Sunrise may from time to time enter
identical orders for futures interests and, therefore, compete for the same
trades. Such competition could prevent orders for the Partnership from being
executed at desired prices.
ALLOCATION OF THE PARTNERSHIP'S NET ASSETS AMONG THE TRADING ADVISORS MAY
ADVERSELY AFFECT THE PARTNERSHIP'S PERFORMANCE. The General Partner anticipates
allocating the proceeds from the sale of Units at each closing equally among
EMC, Rabar, and Sunrise. The General Partner may reallocate the Partnership's
Net Assets among the Trading Advisors (including any newly-designated trading
advisors) in such amounts as the General Partner determines in its sole
discretion. Also, as a result of the performance of each of the Trading Advisors
since the commencement of trading by the Partnership, the allocations for each
Trading Advisor are not equal. This may affect the performance results of the
Partnership. For example, a Trading Advisor may experience a high monthly rate
of return but may only be managing a small percentage of the Partnership's Net
Assets and the Net Asset Value of a Unit. Alternatively, a Trading Advisor
experiencing such a rate of return may be managing a large percentage of the
Partnership's Net Assets and such performance may have a significant affect on
the Partnership's Net Assets and the Net Asset Value of a Unit. As of August 31,
1996, EMC was trading approximately 26%, Rabar was trading approximately 42%,
and Sunrise was trading approximately 32% of the Partnership's assets.
Although each Trading Advisor's margin and option premium requirements will
be charged against such Trading Advisor's allocated Net Assets, a Trading
Advisor may incur losses of such magnitude that it is unable to meet margin
calls from its allocated Net Assets. If this occurs, the General Partner may be
required to reallocate Net Assets among the Trading Advisors and may be required
to take Net Assets from the more successful Trading Advisors to satisfy margin
requirements attributable to trading directed by the unsuccessful Trading
Advisor. This could adversely affect the performance of such other Trading
Advisors and the Partnership. See "The Trading Advisors" and "The Management
Agreements--Allocation and Reallocation of the Partnership's Net Assets."
POSSIBLE ADVERSE EFFECTS OF INCREASING THE ASSETS TRADED BY THE TRADING
ADVISORS. 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 Advisors have not
agreed to limit the amount of additional equity that they may manage. There can
be no assurance that the Trading Advisors' respective trading systems will not
be adversely affected by additional equity, including the proceeds of this
offering.
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TRADING DECISIONS BASED ON TECHNICAL TRADING APPROACH MAY NOT PERFORM UNDER
CERTAIN MARKET CONDITIONS. Trading decisions of the Trading Advisors are based
on "technical" trading systems 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 Advisors' respective trading systems 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 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 Advisors' trading systems
involve many variables and are determined, in the case of Rabar and EMC,
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 respective trading strategies employed by the Trading Advisors
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
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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 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 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."
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 any 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 Advisors are registered as
commodity trading advisors, 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.
20
<PAGE>
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 Advisors 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 who 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 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
21
<PAGE>
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 ADVISORS 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, and the Trading Advisors, 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 certain of the
Trading Advisors 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 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 ADVISORS
Each Management Agreement allows the Trading Advisor to manage futures
interests accounts in addition to the Partnership's account. Each Trading
Advisor and its principals and affiliates may at any time be trading their own
proprietary accounts, advising accounts for other commodity pools and/or
individual customers and operating other commodity pools and will continue such
activities in the future. Some Trading Advisors may also operate additional
trading systems or use other trading programs in their management of accounts,
some of which systems and programs may not be used in trading for the
Partnership. Such other trading systems have in the past and may in the future
experience significantly different performance results than the systems used in
trading for the Partnership. The Trading Advisors are required to aggregate
futures and option positions in other accounts managed by them with futures and
option positions in the Partnership's account for speculative position limit
purposes. Such aggregation of positions could require a Trading Advisor to
liquidate or modify positions for all such accounts, and such liquidation or
modification may adversely affect the Partnership. A Trading Advisor may have a
conflict of interest in rendering advice because its compensation for managing
some other accounts may exceed its compensation for managing the Partnership's
account, and therefore may provide an incentive to favor such other accounts.
Moreover, if a Trading
22
<PAGE>
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
each Trading Advisor's employees and accounts managed by the Trading Advisor
will not be made available to Limited Partners, each Management Agreement
permits the General Partner access to such records in order to determine that
the Partnership's account is traded fairly. Each Management Agreement also
provides that the Trading Advisor will deal with the Partnership in a fiduciary
capacity to the extent recognized by applicable law and will not enter into
transactions where it knowingly or deliberately favors itself or another client
over the Partnership.
CUSTOMER AGREEMENT WITH DWR
The Partnership has established separate futures interests trading accounts
with DWR for each Trading Advisor pursuant to the Customer Agreement with DWR.
Under the Customer Agreement, 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 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 Advisors also have a fiduciary responsibility
under applicable law to the Partnership.
The Limited Partnership Agreement, the Customer Agreement, and the
Management Agreements generally provide that the General Partner, DWR, each
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.
23
<PAGE>
The Limited Partnership Agreement, the Customer Agreement, the Selling
Agreement, and the Management Agreements generally provide that the Partnership
will indemnify, defend, and hold harmless the General Partner, DWR, the Trading
Advisors 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 a 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
will not carry insurance covering such potential losses and the Partnership will
carry no 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 Advisors 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 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.
24
<PAGE>
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 August 1, 1991 through August 31,
1996. Since the commencement of trading operations, all assets of the
Partnership have been allocated to the Trading Advisors for trading.
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 SELECT FUTURES FUND L.P.
Type of Pool: Publicly-Offered Pool
Inception of Trading: August 1991
Aggregate Subscriptions: $178,588,966
Current Capitalization: $136,513,268
Worst Monthly % Drawdown (Month/Year): (13.72)%--(1/92)
Worst Month-End Peak-to-Valley Drawdown: (26.77)%--(15 months)
(6/95-8/96)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
MONTHLY RATES OF RETURN % % % % % %
- ---------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
January........................... (0.38) (8.13) (11.67) 0.31 (13.72)
February.......................... (12.11) 9.61 (6.79) 14.84 (6.09)
March............................. (0.22) 20.58 12.57 (0.59) (3.91)
April............................. 4.07 9.06 (0.95) 10.35 (1.86)
May............................... (3.65) 11.08 6.84 1.95 (1.42)
June.............................. 1.37 (1.70) 10.30 0.21 7.19
July.............................. (1.44) (10.61) (4.91) 13.90 10.72
August............................ (0.46) (4.81) (6.95) (0.95) 6.69 (6.20)
September......................... (7.76) 1.25 (4.13) (5.24) 6.32
October........................... (3.35) (4.78) (4.97) (3.17) (2.28)
November.......................... 1.37 5.68 (1.30) 1.39 (2.93)
December.......................... 11.19 (2.72) 8.14 (3.58) 38.67
Compound Annual (Period) Rate of
Return........................... (12.86) 23.63 (5.13) 41.63 (14.45) 31.18
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
25
<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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE HISTORY
<S> <C>
Net Asset Value per Unit
SFF
1000.00
938.03
997.33
974.59
946.08
Dec 91 1311.91
1131.97
1063.01
1021.45
1002.48
988.25
1059.32
1172.90
1251.34
1185.75
1148.12
1164.06
Dec 92 1122.39
1125.87
1293.01
1285.31
1418.31
1445.99
1449.03
1650.44
1634.78
1567.26
1489.30
1469.95
Dec 93 1589.53
1403.96
1308.63
1473.08
1459.11
1558.94
1719.48
1635.10
1521.54
1540.54
1466.94
1550.30
Dec 94 1508.07
1385.43
1518.57
1831.08
1996.89
2218.08
2180.39
1948.96
1855.19
1711.24
1653.91
1676.60
Dec 95 1864.21
1857.19
1632.31
1628.73
1695.09
1633.21
1655.66
1631.86
Aug 96 1624.40
</TABLE>
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 six
months ended June 30, 1996 and 1995, for the years ended December 31, 1995,
1994, 1993, 1992 and the period from August 1, 1991 (commence of trading
operations) through December 31, 1991. 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 PERIOD
FROM AUGUST 1,
1991
(COMMENCEMENT OF
FOR THE SIX MONTHS ENDED TRADING
JUNE 30, FOR THE YEARS ENDED DECEMBER 31, OPERATIONS)
------------------------ -------------------------------------------------- THROUGH DECEMBER
31,
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- ------------------
$ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES
Trading Profit (Loss):
Realized.............. (1,406,672) 90,756,175 65,987,157 19,134,352 12,348,813 10,255,014 8,500,842
Net change in
unrealized........... (12,566,668) (3,342,474) (4,657,344) (7,758,820) 28,172,416 (15,667,091) 17,339,050
----------- ----------- ----------- ----------- ----------- ----------- ------------------
Total Trading
Results............ (13,973,340) 87,413,701 61,329,813 11,375,532 40,521,229 (5,412,077) 25,839,892
Interest income (DWR)... 3,142,338 4,065,579 7,969,749 6,044,870 2,410,096 1,843,146 975,641
----------- ----------- ----------- ----------- ----------- ----------- ------------------
Total Revenues...... (10,831,002) 91,479,280 69,299,562 17,420,402 42,931,325 (3,568,931) 26,815,533
----------- ----------- ----------- ----------- ----------- ----------- ------------------
EXPENSES
Brokerage commissions
(DWR).................. 6,161,235 7,836,230 14,173,695 15,551,182 8,893,981 4,968,630 2,154,355
Management fees......... 2,319,074 2,991,042 5,626,908 5,452,353 3,165,432 1,962,814 783,675
Transaction fees and
costs.................. 454,505 876,504 1,589,795 1,652,264 918,652 478,245 211,394
Administrative
expenses............... 55,000 64,000 148,000 126,000 141,000 152,917 47,000
Incentive fees.......... (172,663) 8,534,385 8,707,049 4,441,510 3,420,048 590,735 3,850,175
----------- ----------- ----------- ----------- ----------- ----------- ------------------
Total Expenses.... 8,817,151 20,302,161 30,245,447 27,223,309 16,539,113 8,153,341 7,046,599
----------- ----------- ----------- ----------- ----------- ----------- ------------------
NET INCOME (LOSS)....... (19,648,153) 71,177,119 39,054,115 (9,802,907) 26,392,212 (11,722,272) 19,768,934
----------- ----------- ----------- ----------- ----------- ----------- ------------------
----------- ----------- ----------- ----------- ----------- ----------- ------------------
NET INCOME (LOSS)
ALLOCATION
Limited Partners........ (19,370,621) 70,282,426 38,580,172 (9,695,068) 26,080,515 (11,601,870) 19,565,498
General Partner......... (277,532) 894,693 473,943 (107,839) 311,697 (120,402) 203,436
NET INCOME (LOSS) PER
UNIT FOR PERIOD
Limited Partners........ (208.55) 672.32 356.14 (81.46) 467.14 (189.52) 311.91
General Partner......... (208.55) 672.32 356.14 (81.46) 467.14 (189.52) 311.91
TOTAL ASSETS AT END OF
PERIOD................. 146,791,790 277,507,283 179,342,999 171,613,080 202,681,945 63,926,484 85,038,080
NET ASSET VALUE PER UNIT
Limited Partners........ 1,655.66 2,180.39 1,864.21 1,508.07 1,589.53 1,122.39 1,311.91
General Partner......... 1,655.66 2,180.39 1,864.21 1,508.07 1,589.53 1,122.39 1,311.91
</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 Advisors 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."
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 Advisors and the ability of their
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 1993, 1994 and 1995 and for the
six months ended June 30, 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 Advisors trade 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 a 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 each 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 1993. In 1993, the Partnership
recorded profits of 41.6% to close out the year at a Net Asset Value per Unit of
$1,589.53.
The Partnership posted strong profits in each of the year's first three
quarters. Profits in the first quarter resulted from significant gains in
February from trading in currencies, as the Japanese yen trended higher versus
the U.S. dollar and major European currencies, and in financial futures as the
Fund benefited from a rally in global bond prices. The second quarter provided
the Partnership additional profits as gains of more than 10% in April resulted
from continued strengthening of the yen as well as from a sharp move higher in
precious metals and a strong move in global stock index futures.
The third quarter for the Partnership began strong in July with profits of
almost 14% from trading in energies, metals and European bond futures.
Unfortunately, a portion of these gains were offset by
28
<PAGE>
losses in August and September as a result of a sharp reversal in the upward
trend in domestic commodities as energies and precious metals failed to sustain
their July trends. The Partnership's trading in the fourth quarter resulted in
small gains as profits in December from trading in energies and agriculturals
offset smaller losses in currencies and metals during October and November.
Overall, 1993 was a successful year for the Partnership as the Partnership's
aggressive trading strategies resulted in significant profits in the year's
first seven months when trends in domestic and international futures markets
were evident. The Partnership also limited losses later in the year by remaining
diversified over a wide variety of distinct market sectors.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1994. During 1994, the
Partnership recorded a net loss of 5.1% to close out the year at a Net Asset
Value per Unit of $1,508.07.
In January, extreme short-term volatile price movement across a variety of
market sectors netted losses for the Partnership in global interest rate futures
(Japanese Government bond, French bond and German bond futures), as well as in
major currency values versus the U.S. dollar. Difficult trading conditions
continued into February causing losses in the currency, energy and international
stock index futures markets. Performance rebounded for the Partnership in March
with gains of about 12.5%, as significant profits were recorded in the financial
and currency sectors.
Small losses were recorded in April for the Partnership primarily as a
result of a sharp increase in value of the U.S. dollar on April 5th, after
decreasing late in March.
In May, the Partnership's long positions in coffee provided gains as a
severe winter rallied prices in Brazil. Energy and base metals prices also
increased and gains in short-term U.S. and long-term European interest rate
futures were profitable. Gains by the Partnership were also generated in the
currency markets during June as a result of the U.S. dollar's decline versus
major European currencies.
The Partnership's losses in July were the result of reversals in previously
established downward trends in the U.S. and global interest rate futures markets
and a sudden strengthening of the U.S. dollar versus most major currencies.
Negative performance for the Partnership in August was due to trendless price
patterns across a majority of domestic futures markets including energy,
currencies, metals and financial markets. September's gains by the Partnership
in the energy and currency market offset a portion of overall losses for the
quarter.
The Partnership's losses in October resulted from trendless price movement
in global financial futures and from short-term volatility in precious metals
and energy prices. Gains by the Partnership in November resulted from trading in
eurodollar and U.S. Treasury note futures. Additional gains resulted from upward
trends in sugar, cotton and base metals prices. A sudden move downward in value
of the U.S. dollar on December 28th caused losses for the Partnership from long
U.S. dollar positions versus the Japanese yen, Swiss franc and British pound.
Overall, 1994 proved to be a modestly difficult year for the Partnership due
primarily to the lack of sustained price trends in the currency and global
financial futures complexes. Smaller profits from trading in soft commodities
and base metals during the year offset a majority of the Partnership's losses.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1995. During 1995, the
Partnership recorded profits of 23.6% to finish the year at a Net Asset Value
per Unit of $1,864.21.
In January, trading losses were recorded by the Partnership early in the
month as a result of a decline in the value of the U.S. dollar relative to most
major world currencies. Smaller losses by the Partnership were recorded in both
U.S. and international interest rate futures trading due to short-term volatile
price movement. In February and March, significant gains were recorded by the
Partnership from trading in both financial futures and currencies. In financial
futures, increased interest rate futures prices over this two-month period
resulted in gains from long positions in global bond futures. In the currency
markets, a decline in the value of the U.S. dollar resulted in trading profits
for the Partnership's long positions in the Japanese yen, German mark and Swiss
and French francs.
29
<PAGE>
The Partnership's positive performance continued into April and May as the
previously established long positions in both U.S. and international interest
rate futures profited from the upward trend in interest rate futures prices. In
addition, the value of the Japanese yen relative to the U.S. dollar continued to
move higher early in April contributing to the overall Partnership gains during
the month. Smaller gains were recorded from long S&P 500 Index futures positions
as domestic stock prices moved higher during May.
Trading losses were recorded by the Partnership during June as the upward
price trend in overseas bond futures subsided. Small Partnership losses were
recorded during June in agricultural futures from trading in soybean and corn
futures, and in currencies as foreign currencies moved in a narrow trading range
versus the U.S. dollar and one another.
In July, the Partnership experienced a difficult trading environment in U.S.
and global interest rate futures, as prices retreated from their previous move
higher. Trendless price movement also resulted in losses within the metals,
agricultural and energy market sectors. Losses were recorded by the Partnership
during August as global interest rate futures prices moved without consistent
direction. Additional losses were recorded by the Partnership in the soft
commodities markets due to short-term volatile price movement. During September,
losses were recorded by the Partnership due to a dramatic trend reversal in the
upward move of the U.S. dollar relative to most European currencies on September
20 and 21. Smaller losses were recorded during this period in energy futures as
prices declined abruptly, resulting in losses from long oil and gas positions.
Trading in international interest rate futures by the Partnership during
October resulted in net losses as global bond prices moved in a short-term
volatile pattern. Trendless price movement in stock index, energy and metals
futures prices resulted in additional losses being recorded. In November,
financial futures trading by the Partnership was profitable as increasing global
bond futures prices resulted in gains being recorded from long positions in
European, U.S., Japanese and Australian government bond futures. Additional
trading gains were recorded from trading in soft commodities. Long positions in
natural gas futures resulted in significant gains during December by the
Partnership as prices increased dramatically. Additional gains were recorded
from long positions in both crude and heating oil futures. Long positions in
European and U.S. bond futures also contributed profits during December as
European and U.S. bond futures prices continued their bullish trend.
Overall, the Partnership recorded strong gains for the year primarily due to
participation in global interest rate futures, as both U.S. and international
interest rate futures witnessed sustained upward price trends during several
periods of the year. These gains, coupled with gains in the currency markets in
the year's first half, constituted a majority of the profits for the year.
In summary of the three years, the General Partner believes that there were
fewer sustained trends in 1994 than in 1993 and 1995 as a result of several
factors, including a change in monetary policy by the U.S. Federal Reserve which
affected global interest rate futures; a relatively flat U.S. stock market
resulting in little price movement in U.S. stock index futures; fewer weather
interruptions resulting in steadier prices for certain commodities; relatively
unchanged gold prices affecting other precious metals; and the lack of
significant changes in value for many of the world's major currencies relative
to the U.S. dollar and one another.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996. Through the
first six months of 1996, the Partnership recorded a net loss of 11.2%; the Net
Asset Value per Unit at June 30, 1996 was $1,655.66. The most significant losses
were experienced in global interest rate futures trading during February, as the
previous upward price trend that was profitable in late 1995 and January 1996
reversed sharply lower. As a result, losses were recorded from previously
established long positions in U.S. and European interest rate futures. Smaller
losses were recorded in non-U.S. bond futures from March through June as
trendless price movement followed. Losses were also recorded in global stock
index futures, as choppy price movement was experienced during March, May and
June. In other markets, losses were recorded from soft commodities trading, as
sugar and coffee prices moved in a trendless pattern throughout a majority of
the period. Smaller losses were recorded from metals and energy
30
<PAGE>
futures trading, as short-term price volatility was experienced early in the
first quarter. These losses were partially offset by gains recorded in the
currency markets from short Japanese yen positions during January and March, as
the value of the yen declined versus the U.S. dollar. Additional gains were
recorded from short German mark and Swiss franc positions, as the value of these
currencies moved lower relative to other world currencies during April, and from
long Australian dollar positions, as its value moved higher during March.
To enhance the foregoing comparison of results of operations from year to
year, prospective investors can examine, line by line, the Partnership's
Statements of Operations and Statements of Financial Condition. Total trading
results decreased during the first half of 1996 relative to the first half of
1995. Total trading results were profitable in 1993 and in 1995 versus smaller
gains in 1994 and losses in 1992. Strong results in 1993 and 1995 were the
result of significant price trends across a variety of futures markets,
particularly currencies and global financial futures. Such periods of price
trends provide good profit opportunities for the trend-following trading
strategies of the Partnership's three Trading Advisors. Futures price activity
in 1992 and 1994 was characterized by more trendless and short-term volatile
price movement across a majority of markets, thus creating a more difficult
trading environment for the Partnership's Trading Advisors.
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. Interest income for the
Partnership has increased each fiscal year since 1992. Despite a reduction in
U.S. Treasury bill rates in 1993, interest income in 1993 was greater than 1992
because the Partnership's assets grew as a result of strong trading profits and
additional subscriptions in October 1993. Increasing interest rates in 1994 and
a larger asset size throughout the year resulted in significantly higher
interest income to the Partnership. In 1995, the increase in asset size was the
primary reason for an increase in interest income to the Partnership. Interest
income to the Partnership decreased during the first half of 1996 when compared
to the first half of 1995 as a result of a 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 1993, brokerage commissions and
transaction fees and costs increased as a result of increasing trading volume
due primarily to the increase in size of the Partnership. In 1994, a further
increase in brokerage commissions and transaction fees and costs and a
corresponding increase in trading volume was due to larger asset size over the
full year, coupled with an increased level of trading resulting from more short-
term volatile price movement in a majority of futures markets. Brokerage
commissions and transaction fees and costs declined in 1995 as a result of the
presence of more long-term price trends in a majority of futures markets in
which the Partnership's Trading Advisors concentrate their participation. During
the first half of 1996, brokerage commissions and transaction fees and costs
charged to the Partnership decreased relative to the first half of 1995 due to a
reduction in the Partnership's Net Assets.
Management fees to the Partnership are charged at a 3% annualized rate of
Net Assets and fluctuate based only on the size of Net Assets. Management fees
have increased each year since 1992 in direct proportion to the assets of the
Partnership. Management fees decreased during the first half of 1996 relative to
the first half of 1995 as a result of the reduction in assets during this
period. Incentive fees are paid on a quarterly basis or on any redeemed Units on
a monthly basis if the Partnership is profitable. Incentive fees have increased
each year as a result of positive quarterly performance and Units being redeemed
at a profit. Incentive fees charged to the Partnership during the first half of
1996 decreased relative to the first half of 1995 as a result of an adjustment
of previous accruals.
Common 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
31
<PAGE>
expenses on a gross basis have shown relatively little fluctuation and as a
percentage of assets have decreased over time. During the first half of 1996,
administrative expenses charged to the Partnership were reduced as compared to
the first half of 1995.
See "Selected Financial Data" and "Independent Auditors' Report and
Financial Statements of Dean Witter Select Futures Fund L.P." herein.
OFF-BALANCE SHEET RISK. 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 Advisors 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 each Trading Advisor, the Trading Advisors 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. Each 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 Agreements) require a
Trading Advisor to modify positions of the Partnership if the General Partner
believes they violate the Partnership's Trading Policies.
In addition to market risk, in entering into futures, 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 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 members' 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.
32
<PAGE>
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 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 June 30, 1996, open futures and forward contracts were:
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
-----------------
$
<S> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures:
Commitments to Purchase.................................................. 96,651,000
Commitments to Sell...................................................... 313,468,000
Commodity Futures:
Commitments to Purchase.................................................. 48,636,000
Commitments to Sell...................................................... 72,716,000
Foreign Futures:
Commitments to Purchase.................................................. 288,478,000
Commitments to Sell...................................................... 245,663,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS:
Commitments to Purchase.................................................. 18,257,000
Commitments to Sell...................................................... 10,646,000
</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 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 $4,861,543 at June 30, 1996. Of this amount, $4,733,944 related to
exchange-traded futures contracts and $127,599 related to off-exchange-traded
forward currency contracts.
33
<PAGE>
Exchange-traded futures contracts held by the Partnership at June 30, 1996
mature through June 1997. Off-exchange-traded forward currency contracts held by
the Partnership at June 30, 1996 mature through July 1996.
Exchange-traded futures contracts are marked to market and variations in
value are 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 $145,997,178 at
June 30, 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 six months ended June 30, 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.......................................... 328,069,000 316,339,000
Commodity Futures.......................................... 966,332,000 27,879,000
Foreign Futures............................................ 430,699,000 144,055,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS: 15,938,000 37,535,000
</TABLE>
Inflation has not been, and is not expected to be, a major factor in the
Partnership's operations.
34
<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 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 Monthly Management Fee to each Trading A flat rate of 1/4 of 1% of each Trading
Advisors Advisor. Advisor's allocated Net Assets as of the
last day of each month (a 3% annual
rate).
Quarterly Incentive Fee to each Trading 17 1/2% of the Trading Profits experi-
Advisor. enced with respect to each Trading
Advisor's allocated Net Assets 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 of the Partnership's Net
Assets allocated to each Trading Advisor
as of the last day of each month (a
maximum 7.8% annual rate); and (ii) 14%
annually of the Partnership's average
monthly Net Assets, aggregated with net
excess interest and compensating bal-
ance benefits, and transaction fees and
costs, 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>
35
<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 0.80% 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 ADVISORS
(a) MONTHLY MANAGEMENT FEE. The Partnership pays each Trading Advisor a
monthly management fee equal to 1/4 of 1% (a 3% annual rate) of such Trading
Advisor's allocated Net Assets (as defined herein on page 86) on the last day of
each month (before deduction for the management fees, any accrued incentive fees
and any redemptions or distributions). For example, if each Trading Advisor were
allocated Net Assets of $20,000,000 as of the end of each month during a year,
each Trading Advisor would receive an aggregate monthly management fee for the
year of $600,000 (1/4 of 1% of $20,000,000 per month, or $50,000 times 12).
During the period August 1991 through August 1996, management fees have averaged
3.06% per year of the Partnership's average month-end Net Assets. For the fiscal
year 1995 management fees equaled $5,626,908.
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 a Trading Advisor, the Trading Advisor does not
provide its services on any trading day, then the management fee payable to such
Trading Advisor will be prorated based on the ratio that the number of trading
days in the month which the Partnership account managed by the Trading Advisor
engaged in trading operations or received the full utilization of such trading
systems, methods, or strategies, as the case may be, bears to the total number
of trading days in the month.
36
<PAGE>
If the Management Agreement is terminated on a date other than the first day
of a calendar month, the management fee described above will be determined as if
such date were the first day 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 a quarterly incentive
fee equal to 17 1/2% of the Trading Profits experienced with respect to each
Trading Advisor's allocated Net Assets (as defined herein on page 86) as of the
end of each calendar quarter. "Trading Profits" is defined to mean net futures
interests trading profits (realized and unrealized) earned on the Trading
Advisor's allocated Net Assets, decreased by monthly management fees, brokerage
commissions, floor brokerage fees, "give up" or transfer fees, NFA fees, other
transaction fees and costs, a prorata portion of administrative expenses, and
other fees and expenses which are chargeable to the Trading Advisor's allocated
Net Assets; with such Trading Profits and items of decrease determined from the
end of the last calendar quarter in 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 end of
the calendar quarter as of which such incentive fee calculation is made.
Extraordinary expenses of the Partnership, if any, will not be deducted in
determining Trading Profits. No incentive fee will be paid with respect to
interest income of the Partnership. Any accrued incentive fees with respect to
any 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. During the period August 1991 through August 1996, incentive fees
have averaged 3.60% per year of the Partnership's average month-end Net Assets.
For the fiscal year 1995 incentive fees equaled $8,707,049. So as not to
disadvantage existing Limited Partners, if a Trading Advisor has experienced a
loss at the time of a closing, a Trading Advisor must earn back such loss plus a
pro rata amount relating to the new funds allocated to the Trading Advisor at a
subsequent closing before the Trading Advisor will be eligible for an incentive
fee.
If any payment of incentive fees is made to a Trading Advisor on account of
Trading Profits earned with respect to its allocated Net Assets 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
with respect to its allocated Net Assets; PROVIDED, HOWEVER, that if a Trading
Advisor's allocated Net Assets are reduced or increased because of redemptions,
reallocations or subscriptions which occur at the end of, or subsequent to, a
calendar quarter in which the Trading Advisor experiences a futures interests
trading loss with respect to its allocated Net Assets, the trading loss for that
calendar quarter which must be recovered before the Net Assets allocated to the
Trading Advisor will be deemed to experience Trading Profits will be reduced
proportionately based upon such redemptions, reallocations, or subscriptions.
Thus, for example, if a Trading Advisor earned Trading Profits of $1,000,000
with respect to its allocated Net Assets for the quarter ended March 31, the
Trading Advisor would receive an incentive fee of $175,000 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 with respect to its allocated Net Assets 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 17 1/2% 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.)
37
<PAGE>
Because incentive fees are determined and paid separately for each Trading
Advisor, the Partnership may be required to pay an incentive fee to one or two
Trading Advisors in any given quarter in spite of losses or a lack of Trading
Profits experienced by the Partnership as a whole.
If a 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 as if such termination date were at the end of a calendar quarter.
See "The Management Agreements."
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 as of September 1, 1996, commissions, together with the
transaction fees and costs described below, were capped at 13/20 of 1% per month
(a maximum 7.8% annual rate) of the Partnership's Net Assets at month-end
allocated to each Trading Advisor (determined before redemptions and
distributions as of the end of such month). 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. During the
period August 1991 through August 1996, brokerage commissions have averaged
8.12% per year of the Partnership's average month-end Net Assets. For the fiscal
year 1995 brokerage commissions equaled $14,173,695. 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
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 $665,132) incurred in connection with
the organization of the Partnership and the Initial Offering and Second
Offering, and will pay all of the costs incurred in connection with this
offering, estimated to be approximately $875,000 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 and Second Offering costs, 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 credit 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."
38
<PAGE>
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 from August 1991 through August 1996.
For the fiscal year 1995 ordinary administrative expenses equaled $148,000. 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 August 1991 through June 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.
During the period August 1991 through August 1996, transaction fees and costs
averaged 0.80% 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
Advisors. For the fiscal year 1995 transaction fees and costs equaled
$1,589,795. Effective as of September 1, 1996, the aggregate transaction fees
and costs and brokerage commissions incurred by the Partnership with respect to
each Trading Advisor's allocated Net Assets were capped at 13/20 of 1% per month
of the Partnership's month-end Net Assets allocated to such Trading Advisor. 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 any
Trading Advisor for the Partnership shall not exceed 15% of the Partnership's
39
<PAGE>
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 trading profits (after taking into account estimated
interest income based upon current rates of 5%) of 7.06% per year of the
Partnership's average annual Net Assets in order to avoid depletion or
exhaustion of the assets of the Partnership. This assumes that each 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 trading profits (after taking into account estimated
interest income) of 10.16% per year of its annual 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.
Based upon the selling price as of August 31, 1996, the Partnership must
earn net trading profits of $164.97 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>
$
Selling Price per Unit (as of 8/31/96)(1)......................................... 1,624.40
Management Fee(2)................................................................. 50.24
Brokerage Commissions(3).......................................................... 112.41
Administrative Expenses(4)........................................................ 4.06
Transaction Fees and Costs(5)..................................................... 13.00
Less: Interest Income(6).......................................................... (64.98)
Redemption Fee(7)................................................................. 50.24
Incentive Fee(8).................................................................. --
Amount of Trading Income Required for a Limited Partner to Recoup its Investment
at the End of One Year.......................................................... 164.97
Percentage of Initial Selling Price............................................... 10.16%
</TABLE>
- ---------
NOTES
(1) Units of each Partnership are offered for sale at the First, Second, and
Third Closings 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 applicable closing.
(2) Monthly management fees are equal to 1/4 of 1% of the Net Assets allocated
to each Trading Advisor on the last day of each month (a 3% annual rate).
40
<PAGE>
(3) Brokerage commissions have averaged 8.12% 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 as of
September 1, 1996, aggregate commissions and transaction fees and costs were
capped at 13/20 of 1% per month (a maximum 7.8% annual rate) of the
Partnership's Net Assets at month-end allocated to each Trading Advisor. For
purposes of the above table, brokerage commissions were assumed to be 6.92%
based on adjusting prior brokerage commissions for the new cap.
(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 0.80% per year of the Partnership's
average month-end Net Assets since inception of trading. Effective as of
September 1, 1996, aggregate transaction fees and costs and brokerage
commissions were capped at 13/20 of 1% per month of the Partnership's
month-end Net Assets allocated to each Trading Advisor. For purposes of the
above table, transaction fees and costs were assumed to be 0.80%.
(6) Effective on the day of the First 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. Such rate was estimated at 5% for the period.
(7) Units redeemed at the end of one year from the date of purchase are subject
to a 3% redemption charge.
(8) Incentive fees are assumed to be zero because (i) interest income is greater
than the redemption fee and (ii) each Trading Advisor's trading profits
equal expenses.
The General Partner will furnish to each Limited Partner a monthly statement
describing the performance of 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 March 1991 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
Advisors. 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 Advisors. The Partnership's
margin commitments with respect to its U.S. futures positions have ranged, and
are anticipated to range, between 25% and 35% 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 on the following foreign futures exchanges: the Deutsche
Terminborse, the Hong Kong Futures Exchange Ltd., the International Petroleum
Exchange of London,
41
<PAGE>
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 Advisors for the Partnership are EMC Capital Management, Inc.
("EMC"), Rabar Market Research, Inc. ("Rabar"), and Sunrise Capital Management,
Inc. ("Sunrise"). Subject to certain limitations, the Trading Advisors have
authority and responsibility for independently directing the investment and
reinvestment in futures interests of their allocated share of Partnership Net
Assets. See "The Management Agreements." 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 respective trading approaches of each of the
Trading Advisors.
The assets of the Partnership will be traded pursuant to technical trading
systems developed by each Trading Advisor. See "The Trading Advisors--EMC
Capital Management, Inc.--Description of EMC's Trading Approach," "--Rabar
Market Research, Inc.--Description of Rabar's Trading Approach," and "--Sunrise
Capital Management, Inc.--Description of Sunrise's Trading Approach." See also
"General Description of Trading Approaches."
The Trading Advisors will be allocated the net proceeds received by the
Partnership pursuant to this offering in the following proportions:
<TABLE>
<S> <C>
%
---
EMC Capital Management, Inc........................................... 33 1/3
Rabar Market Research, Inc............................................ 33 1/3
Sunrise Capital Management, Inc....................................... 33 1/3
</TABLE>
The Trading Advisors are obligated to invest in accordance with the
Partnership's trading policies. These trading policies provide, among other
things, that a Trading Advisor may commit as margin up to, but no more than, a
certain percentage of funds under management. See "Trading Policies" below. The
current allocation of the Partnership's assets among the Trading Advisors as of
August 31, 1996 is 26%, 42% and 32% for EMC, Rabar and Sunrise respectively.
Effective on the day of the First 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 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
42
<PAGE>
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 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 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, the Trading Advisors will reduce their 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
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."
43
<PAGE>
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. If the
Partnership borrows money from the General Partner or any "affiliate" thereof
(as defined in Section 14(c) of the Limited Partnership Agreement), the lending
entity in such case (the "Lender") may not receive interest in excess of its
interest costs, nor may the Lender receive interest in excess of the amounts
which would be charged the Partnership (without reference to the General
Partner's financial abilities or guarantees) by unrelated banks on comparable
loans for the same purpose, nor may the Lender or any affiliate thereof receive
any points or other financing charges or fees regardless of the amount. Use of
lines of credit in connection with its forward trading does not, however,
constitute borrowing for purposes of this trading limitation.
8. The Partnership will not permit "churning" of the Partnership's assets.
44
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Partnership as of
August 31, 1996 and the pro forma capitalization of the Partnership adjusted to
reflect the proceeds (at the Net Asset Value of $1,624.40 per Unit at August 31,
1996) from the sale during the Offering Period of the maximum number of Units
(60,000) 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)
AUGUST 31, 1996 ----------------
---------------- SALE OF MAXIMUM
OUTSTANDING UNITS
---------------- ----------------
<S> <C> <C>
Limited Partnership Interest(1)........................ $ 134,351,573 $ 231,815,573
General Partnership Interest(2)........................ 2,161,695 2,341,572
---------------- ----------------
Total.......................................... $ 136,513,268 $ 234,157,145
---------------- ----------------
---------------- ----------------
</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 applicable 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 and privately 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 Portfolio Strategy Fund
L.P. (formerly Dean Witter Principal Secured Futures Fund L.P.) ("Portfolio
Strategy"), 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 L.P. ("DWR/ JWH"), plus four other commodity pools which
are exempt from certain disclosure requirements
45
<PAGE>
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 (until its
termination in March 1996), the inception of Principal Guaranteed Fund III in
October 1988 (until its termination in September 1995), the inception of
Principal Plus in August 1989, the inception of Diversified III in May 1990, the
inception of Portfolio Strategy in August 1990, the inception of 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 August 31,
1996, the General Partner had an aggregate of approximately $950 million in net
assets under management. As of August 31, 1996, there were approximately 88,000
investors in the commodity pools managed by Demeter and, according to MANAGED
ACCOUNT REPORTS, as of December 31, 1995, Demeter was the biggest manager of
public commodity pools in terms of assets under management, with Demeter's pools
representing a significant portion of all public commodity pools.
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 1995 Annual Report and its Form
10-Q for the quarter ended June 30, 1996, DWD had total shareholders' equity of
$4,833.7 million and total assets of $38,208.2 million as of December 31, 1995
(audited), and total shareholders' equity of $4,953.3 million and total assets
of $36,061.8 million as of June 30, 1996 (unaudited). Additional financial
information regarding DWD is included in the financial statements filed as part
of such Annual Report and Form 10-Q. 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).
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 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
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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 18 years. While Mr. DeMartini has extensive experience in the
securities industry, he has no experience in futures interests trading.
MARK J. HAWLEY, age 53, is President and a Director of the General Partner.
Mr. Hawley joined DWR in February 1989 as Executive Vice President and Director
of DWR's Managed Futures and Precious Metals 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 35, is a Director of the General Partner. Mr. Murray
is currently a First 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.P. 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.
Mr. Mark J. Hawley, a principal of the General Partner, owns 20 Units of the
Partnership. No other principals of the General Partner own Units as of the date
of this Prospectus.
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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THE FUTURES, OPTIONS AND FORWARDS MARKETS
Since 1974, the market in futures interests has undergone dramatic changes.
According to statistics provided by the Futures Industry Association, in 1974
the futures markets were divided 82% in agricultural products, 15% in metals, 2%
in currencies, and 1% in lumber and energy products; by 1995, the markets were
divided 54% in interest rates, 12% in agriculturals, 11% in stock indices, 9% in
currencies, 8% in metals, and 6% in energy products. By 1995, over $21 billion
was invested in managed futures interests.
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 1996 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 1996 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.
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A call option on a futures contract is said to be "in-the-money" if the
striking price is below current market levels, and "out-of-the-money" if the
striking price is above current market levels. Similarly, a put option on a
futures contract is said to be "in-the-money" if the striking price is above
current market levels, and "out-of-the-money" if the striking price is below
current market levels.
Options have limited life spans, usually tied to the delivery or settlement
date of the underlying futures contract. An option that is out-of-the-money and
not offset by the time it expires becomes worthless. On certain exchanges,
in-the-money options are automatically exercised on their expiration date, but
on others unexercised options simply become worthless after their expiration
date. Options usually trade at a premium above their intrinsic value (I.E., the
difference between the market price for the underlying futures contract and the
striking price), because the option trader is speculating on (or hedging
against) future movements in the price of the underlying contract. As an option
nears its expiration date, the market and intrinsic value typically move into
parity. The difference between an option's intrinsic and market values is
referred to as the "time value" of the option.
The use of interrelated options and futures positions can provide an
additional means of risk management and permit a trader to retain a futures
position in the hope of additional appreciation in that position, while at the
same time allowing the trader to limit the possible adverse effects of a decline
in the position's value.
Successful futures options trading requires many of the same skills as does
successful futures trading. However, since specific market movements of the
underlying futures contract or commodity must be predicted accurately, the risks
involved are somewhat different. For example, if 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.
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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 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.
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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.
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 Advisors. If the
registration of a Trading Advisor as a commodity trading advisor were to be
terminated, restricted or suspended, the Trading Advisor would be unable, until
such time (if any) as such registration were to be reinstated, to render trading
advice to the 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
Advisors 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
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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 Advisors are members of the NFA (the
Partnership itself is not required to become a member of the NFA).
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
Advisors. The following is a brief description of general approaches used in
trading futures interests, followed by specific information relating to the
Trading Advisors.
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 Advisors are systematic, although subjective judgment is used in
the application of their 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 programs of EMC and Sunrise are pure technical systems. Rabar's
trading program is also a technical system but incorporates analysis of key
fundamental factors, particularly for risk control factors.
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 each Trading Advisor's technical analysis.
RISK CONTROL TECHNIQUES
As will be apparent from the following descriptions of the Trading Advisors'
trading approaches, 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 a 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. Each Trading
Advisor may, in its sole discretion, elect to trade certain futures interests to
the exclusion of others in its programs, depending upon the Trading Advisors'
view of the markets.
THE TRADING ADVISORS
INTRODUCTION
The Partnership has entered into Management Agreements with EMC Capital
Management, Inc. ("EMC"), Rabar Market Research, Inc. ("Rabar"), and Sunrise
Capital Management, Inc. ("Sunrise") (collectively, the "Trading Advisors"),
pursuant to which the Trading Advisors will, subject to certain limitations,
have authority and responsibility for directing the investment and reinvestment
in futures interests of their allocated share of Partnership Net Assets. See
"The Management Agreements." 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 success of the respective trading approaches of each of the Trading
Advisors.
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
selecting the trading advisors for the Partnership was to attempt to obtain a
combination of trading advisors employing 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 selection of the Trading Advisors was influenced by a number of factors,
among which was the General Partner's evaluation of each Trading Advisor's
historical performance, including the markets traded by each Trading Advisor,
its ability to control risk, the amount of equity previously managed by each
Trading Advisor, and a desire to seek a complementary mixture of trading
approaches and markets traded.
The General Partner has, to date, allocated the Partnership's Net Assets to
the management of the Trading Advisors in equal proportions and anticipates
allocating the proceeds of this offering equally among the Trading Advisors. The
General Partner, however, has the discretion to reallocate Net Assets among EMC,
Rabar, and Sunrise at any subsequent date. See "The Management
Agreements--Allocation and Reallocation of the Partnership's Net Assets."
The following descriptions of the Trading Advisors, their respective trading
systems, methods, and strategies and their respective principals are general and
are not intended to be exhaustive. Certain Trading Advisors may have chosen to
refer to specific aspects of their trading systems, methods, and strategies
which may be applicable to other Trading Advisors which did not choose to make
explicit reference to such specific characteristics of their trading systems,
methods, and strategies. As a consequence, contrasts in the following
descriptions may not, in fact, indicate a substantive difference between and
among the trading systems, methods, and strategies in question.
EMC CAPITAL MANAGEMENT, INC.
EMC is an Illinois corporation, registered with the CFTC as a commodity
trading advisor and commodity pool operator. EMC was incorporated in January
1988 for the purpose of acting as a commodity trading advisor, and was
registered with the CFTC as a commodity trading advisor in May of 1988 and as a
commodity pool operator in February 1991. Elizabeth Cheval is the sole director
of EMC, although Ms. Cheval's stock ownership in EMC is held through a revocable
trust of which she is the sole beneficiary and sole trustee. Ms. Cheval is a
member of the NFA as is EMC in its capacity as a
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commodity pool operator and commodity trading advisor. The business address and
telephone number of EMC are 2201 Waukegan Road, Suite West 240 Bannockburn,
Illinois 60015 and (847) 267-8700. EMC is not affiliated with the General
Partner, DWR, Rabar or Sunrise.
The principals of EMC are Elizabeth A. Cheval and Jeffrey D. Izenman.
Elizabeth A. Cheval, age 39, is the Chairman and sole Director of EMC. In
1984 Ms. Cheval was selected with nine other individuals by Richard J. Dennis,
Jr., a speculative trader of futures and options, to trade for his personal
account. As his employee, Ms. Cheval received extensive training from Mr.
Dennis, who personally supervised her trading. In 1986 she became a
self-employed trader of client equity, and continued to trade for accounts of
family members of Mr. Dennis until May of 1988 when Mr. Dennis elected to
discontinue his trading program. Prior to working with Mr. Dennis, Ms. Cheval
worked with A.G. Becker, a Chicago-based brokerage firm, advising traders of
mortgage-backed securities on hedging in the futures markets. Ms. Cheval has
traded futures since 1983, when she began trading financial futures for her own
account. Ms. Cheval received a B.A. in Mathematics from Lawrence University in
1978.
Jeffrey D. Izenman, age 39, is the President of EMC having joined the firm
in that capacity in September, 1994. Since January, 1995, Mr. Izenman has also
been a member of the Board of Directors of the Managed Futures Association and
is a member of the Association's four person executive committee. Prior to
joining EMC, Mr. Izenman was a partner in the law firm of Katten Muchin & Zavis
from October, 1988 through August, 1994, and an associate with that firm from
September, 1982 through September, 1988. There he specialized in the
representation of commodity trading advisors (including EMC) and commodity pool
operators as well as securities investment advisers and hedge fund operators.
Mr. Izenman received his JD degree from the University of Michigan Law School in
May, 1982 and a B.S. in Accountancy from the University of Illinois in May,
1979.
At this time, neither EMC nor Ms. Cheval or Mr. Izenman trades for its or
their own account, but each reserves the right to do so in the future. If either
EMC or Ms. Cheval or Mr. Izenman engage in such trading, records will not be
available for inspection by Limited Partners. It should be noted that EMC is
currently the CPO and CTA of the EMC Premier Fund, L.P., a commodity pool for
which EMC acts as the general partner. Ms. Cheval is currently a limited partner
in two commodity pools for which EMC is a trading advisor. Neither EMC or any of
its principals own any Units of the Partnership.
There have been no material administrative, civil, or criminal actions
pending, on appeal or concluded against EMC or any of its principals.
DESCRIPTION OF EMC'S TRADING APPROACH
EMC currently invests client assets solely through its Diversified Program.
The Diversified Program is being utilized for the Partnership. The exact nature
of EMC's investment programs is proprietary and confidential. The following
description, which is of necessity general and is not intended to be exhaustive,
is of The Diversified Program only.
EMC's investment strategy is technical rather than fundamental in nature,
I.E., it is developed from analysis of patterns of actual monthly, weekly, and
daily price movements and is not based on analysis of fundamental supply and
demand factors, general economic factors or anticipated world events. EMC relies
on historical analysis of these price patterns to interpret current market
behavior and to evaluate technical indicators for trade initiations and
liquidations.
EMC's investment strategy is trend-following in that initiations of
positions in a particular market are generally in the direction of the price
trend in that market. Liquidations of positions also are generally
trend-following, but can be countertrend if EMC believes the trend has been
exhausted.
EMC employs an investment strategy which utilizes a number of systems
simultaneously. The strategy is diversified in that EMC follows over fifty
futures interests and often invests in more than ten at one time.
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Although the specific types of futures interest contracts, including but not
limited to futures contracts, options on futures contracts, forward contracts
and cash commodities, to be invested in through the Diversified Program will
vary from time to time, at the present time, EMC principally invests in futures
interests for its clients. Examples of futures interests for which contracts are
now invested in by EMC include, but are not necessarily limited to, precious and
base metals, U.S. and foreign financial instruments, stock indices, foreign
currencies, grains and grain products, energy products such as crude oil, and
soft commodities such as cocoa, orange juice, sugar, and coffee. EMC may invest
in other futures interests in the future. EMC may trade certain futures
interests for some clients which it does not trade for the Partnership.
EMC also will invest in currency forward contracts on the foreign exchange
markets. These markets generally have provided liquidity for the purpose of the
trading of foreign currencies. Trading in foreign exchange contracts is not
regulated by the CFTC and such contracts are not traded on or guaranteed by an
exchange or its clearing house. Rather, banks and dealers act as principals in
the forward contract markets. Therefore, trading in foreign exchange contracts
is not subject to the same protections, either regulatorily or financially, as
is trading in futures contracts.
EMC also may engage in transactions in physical commodities, including
exchange for physical transactions. An exchange for physical ("EFP") is a
transaction permitted under the rules of many futures exchanges in which two
parties holding futures positions may close out their positions without making
an open, competitive trade on the exchange. Generally, the holder of a short
futures position buys the physical commodity, while the holder of a long futures
position sells the physical commodity. The prices at which such transactions are
executed are negotiated between the parties, and such prices may, under certain
circumstances, vary significantly from the actual prices at which the
transactions are traded on the relevant exchanges.
The futures interest contracts typically traded have been chosen for, among
other things, their historical performance and for their customary liquidity.
EMC may frequently invest, however, in less liquid markets. EMC generally
commits approximately 20% to 50% of an account's equity as margin on open
positions.
EMC believes that the development of a futures investment strategy is a
continual process. As a result of further analysis and research into the
performance of EMC's methods, changes have been made from time to time in the
specific manner in which these investment methods evaluate price movements in
various commodities, and it is likely that similar revisions will be made in the
future. As a result of such modifications, the investment methods that may be
used by EMC in the future might differ from those presently being used. Because
EMC's methods are proprietary and confidential, the General Partner may not be
aware of such changes in EMC's investment methods.
Initially, EMC's risk management will be dictated by the amount of its
allocated share of Partnership Net Assets. However, as profits are generated or
losses are incurred, the risk management techniques employed by EMC for the
Partnership will be modified. For example, as its allocated share of Partnership
Net Assets is increased due to both realized and unrealized trading profits, EMC
may increase the amount of leverage used and increase the risk taken with
realized profits.
If possible within existing market conditions, EMC adheres to the
requirements of a money management system which determines and limits the equity
committed to each trade, each commodity and each group of commodities, and sets
optimal stop-losses for each trade and each account. The level of liquidation
determined by this money management system can override liquidations determined
by technical indicators, especially when an account has not generated profits or
is experiencing losses.
Under EMC's investment method, profits, if any, are generated by only a
small percentage of the total number of trades placed. As a result, the
Partnership's Net Assets allocated to EMC will experience times of substantial
drawdowns. These drawdowns may be as high as 50% or more of the amount of funds
initially allocated to EMC. In addition, from time to time EMC may experience
drawdowns well in excess of 50% from peak levels of account performance.
Substantial drawdowns do not, however,
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necessarily indicate a failure in the investment strategy, but rather are to be
expected under the EMC program. Prospective investors must, therefore, be
prepared to withstand these periods of unprofitable trading.
RABAR MARKET RESEARCH, INC.
Rabar is an Illinois corporation which is registered with the CFTC as a
commodity trading advisor and a commodity pool operator and is a member of the
NFA in both such capacities. Paul Rabar is the President and sole principal of
Rabar. Rabar was originally named Rainbow Market Research, Inc. when it was
incorporated in November 1986. It was registered as a commodity trading advisor
and a commodity pool operator in June 1988. Rabar has managed accounts
continuously since July 1988. Its name was changed to Rabar Market Research,
Inc. in January 1989. The business address and telephone number of Rabar are 10
Bank Street, Suite 830, White Plains, New York 10606-1933 and (914) 682-8363.
Rabar is not affiliated with the General Partner, DWR, EMC or Sunrise.
Paul Rabar, age 40, first traded commodity futures in 1980. He worked as an
account executive at E.F. Hutton from 1981 to 1983 and then at Clayton Brokerage
until 1984. In 1985 and 1986 he traded commodity futures for Richard J. Dennis,
Jr., a speculative trader of futures and options. In 1987 and 1988 until May,
Mr. Rabar independently managed an account for another speculative trader of
futures and options. He traded his own account from May 1988 until January 1989,
when he invested in a futures fund to which Rabar is one of the advisors. Mr.
Rabar is a graduate of the New England Conservatory of Music. He did additional
work--primarily in science and mathematics--at Harvard University, and in 1979
and 1980 was an assistant instructor of physics there.
Rabar is the commodity pool operator of, and serves as the trading advisor
to, Rabar Futures Fund, L.P., a private commodity pool. Mr. Rabar is also the
sole shareholder of Rabar International Management, Ltd., a Cayman Islands
corporation, which operates Rabar International Futures Fund, L.P., a commodity
pool organized in the Cayman Islands (that is not open to U.S. investors). Rabar
is the trading advisor of Rabar International Futures Fund, L.P.
It should be noted that Rabar and/or Mr. Rabar currently, and may in the
future, invest in commodity pools that are advised by Rabar. However, neither
Rabar nor Mr. Rabar own any Units of the Partnership.
Rabar does not currently trade an account for itself, but may do so in the
future. Mr. Rabar, however, currently trades a personal account. Such trading
occurs only in markets which are considered too illiquid to trade on behalf of
clients, although Mr. Rabar may trade in other markets in the future. Records of
Rabar's and Mr. Rabar's personal trading will not be open to inspection by
Limited Partners.
There have been no material administrative, civil, or criminal actions
pending, on appeal or concluded against Rabar or Mr. Rabar.
DESCRIPTION OF RABAR'S TRADING APPROACH
Rabar's objective is to achieve appreciation of the Partnership's assets
which it is allocated through speculative trading of futures interest contracts,
including but not limited to domestic and foreign futures contracts and options
on futures contracts and forward contracts. Rabar primarily trades futures
contracts for its existing clients, although Rabar may also engage in the
trading of forward or spot contracts in foreign currencies and cash commodities.
The specific commodity interest contracts will be selected from time to time by
Rabar on the bases discussed below. Examples of futures contracts now traded by
Rabar include, but are not necessarily limited to, gold, silver, U.S. Treasury
bonds, certain foreign currencies, grains and soybean products, oils, and sugar.
Rabar may also engage in EFP transactions. Under certain circumstances, Rabar
may trade certain futures interest contracts for some clients which it does not
trade for the Partnership.
Rabar's trading strategies have been internally researched and developed.
They are technical rather than fundamental in nature, I.E., they are developed
from the research and analysis of patterns of
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monthly, weekly, and daily price movements, and of such indicators as volume and
open interest. Rabar does, however, consider the effects of some key fundamental
factors in certain situations, especially for the purpose of controlling risk.
Rabar's risk management techniques include diversification, I.E., commitment
of equity to many markets and to a number of trading strategies. Also, the
trading program at all times adheres to the requirements of a money management
system which determines and limits the equity committed to each trade, each
market, each commodity complex, and each account. Furthermore, the risk assumed
and, consequently, the potential for profit experienced by a particular account
at different times, and by different accounts at the same time, vary
significantly according to market conditions, the size of a given account, the
percentage gained or lost in that account, and the perceived risk aversion of
that account's owner. Consequently, no investor, including prospective investors
in the Partnership, should expect necessarily the same performance as that of
any other account traded previously, simultaneously, or subsequently by Rabar or
its principal, or of the performance information presented herein.
Rabar's trading program also emphasizes current and ongoing research and
analysis of market behavior in order to continue to develop strategies for
profiting from the changing character of that behavior. Rabar believes that the
development of a commodity trading strategy is a continual process. As a result
of further analysis and research into the performance of Rabar's methods,
changes have been made from time to time in the specific manner in which these
trading methods evaluate price movements in various commodities, and it is
likely that similar revisions will be made in the future. As a result of such
modifications, the trading methods that may be used by Rabar in the future might
differ from those presently being used. The General Partner may not be aware of
such changes in Rabar's trading methods.
The markets typically traded by Rabar have been chosen for their historical
performance, and for their customary liquidity. However, from time to time Rabar
may trade in newer or less liquid markets. There can be no assurance of
liquidity.
The exact nature of Rabar's methods are proprietary and confidential. The
foregoing description is of necessity general and is not intended to be
exhaustive. As stated, trading decisions require the exercise of judgment by
Rabar. The decision not to trade certain commodities or not to make certain
trades may result at times in missing price moves and hence profits of great
magnitude, which other trading advisors who are willing to trade these
commodities may be able to capture. There is no assurance that the performance
of Rabar will result in profitable trading.
Prospective investors should anticipate substantial losses of the portion of
the Partnership's assets allocated to Rabar over long periods of time since
profits, if any, are usually generated by only a few trades. Even more
substantial losses of profits may occur because all profits are subjected to
ever-increasing risk by Rabar and because large portions of unrealized profits
in particular are usually given back before Rabar determines that trend
reversals against its positions have occurred.
SUNRISE CAPITAL MANAGEMENT, INC.
Sunrise is a California corporation with offices at 990 Highland Drive,
Suite 303, Solana Beach, California 92075-2472. Its telephone number is
(619)-259-8911. In January 1994, Sunrise changed its name from "Sunrise
Commodities, Inc." to "Sunrise Capital Management, Inc." This name change became
effective with respect to Sunrise's registration with the NFA in January 1994.
Sunrise was organized in 1983 and continues the business of Sunrise Commodities,
a California sole proprietorship organized in 1982. Sunrise was registered in
February 1983 as a commodity trading advisor and in April 1990 as a commodity
pool operator with the CFTC and is a member of the NFA in both such capacities.
In January 1995, Sunrise and Commodity Monitors, Inc. ("CMI") organized Sunrise
Capital Partners L.L.C. ("Sunrise Capital Partners"), a California limited
liability company. Sunrise Capital Partners is wholly-owned by Sunrise and CMI
and was registered in February 1995 as a commodity trading advisor and commodity
pool operator with the CFTC and is a member of the NFA in both such capacities.
CMI is a California corporation organized in October 1977, and is the successor
to the
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partnership of Harris & Slaughter. CMI was registered in November 1977 with the
CFTC as a commodity trading advisor and is a member of the NFA in such capacity.
Sunrise Capital Partners and CMI are also located at the address of Sunrise set
forth above. While Sunrise, not Sunrise Capital Partners, is a Trading Advisor
for the Partnership, a description of the principals of Sunrise Capital Partners
is included below due to the relationship between Sunrise and CMI resulting from
the establishment of Sunrise Capital Partners. Sunrise and Sunrise Capital
Partners currently operate 5 commodity pools. Sunrise and Sunrise Capital
Partners are not affiliated with the General Partner, DWR, EMC or Rabar.
Martin P. Klitzner, age 51, is President, Secretary and a Director of
Sunrise, and a Managing Director of Sunrise Capital Partners. Mr. Klitzner
received a B.A. Degree from the University of Michigan in 1967 and a M.B.A. from
the University of Michigan in 1968. He did post graduate work in economics at
the University of California, Los Angeles, from 1968 to 1971. Mr. Klitzner
joined Sunrise in December 1982, and has exclusive operational control of the
day-to-day activities of Sunrise which includes the supervision of trading
procedures.
Richard C. Slaughter, age 45, is a Managing Director of Sunrise Capital
Partners. Mr. Slaughter, with Mr. Klitzner, is responsible for Sunrise Capital
Partners' day-to-day trading activities, as well as research and trading systems
development. In 1974, he received a B.S. in finance from San Diego State
University. He has pursued graduate studies in finance at the State University
and in systems management at the University of Southern California. Mr.
Slaughter has been a Professor of Finance, instructing M.B.A. candidates in
securities analysis and portfolio management. Mr. Slaughter, a co-founder of CMI
in 1977, serves as its President. He was responsible, along with Dr. Forrest,
for the development of CMI's current trading systems. Mr. Slaughter began
trading commodities on a full-time basis in 1975 for his own account and as a
commodity trading advisor.
Dr. Gary B. Davis, age 50, is the Chairman of the Board and Chief Financial
Officer of Sunrise. Dr. Davis received a B.S. degree from the University of
Michigan in 1968 and received his medical degree from the University of Michigan
in 1970. Dr. Davis was a professor at the University of California, San Diego
School of Medicine, where he has served on the faculty from 1980 through 1990.
Since 1979, Dr. Davis has studied and traded the commodity futures markets. Dr.
Davis currently concentrates his efforts in the research and trading systems
development activities of Sunrise and Sunrise Capital Partners.
Dr. John V. Forrest, age 52, engages in research and trading systems
development on behalf of Sunrise Capital Partners. In 1962, he received a B.A.
from Notre Dame and in 1966 received a Medical Degree from the State University
New York -- Downstate Medical Center. Dr. Forrest is currently a Professor of
Medicine at the University of California, San Diego, where he has served on the
faculty since 1976. Dr. Forrest joined CMI in September 1991 and is a
co-developer, with Mr. Slaughter, of CMI's current trading systems. He was
President and sole shareholder of Cresta Commodities, a commodity trading
advisor, from September 1981 to August 1989. Dr. Forrest began trading the
commodity markets in 1975.
Martin M. Ehrlich, age 48, is Vice President and a Director of Sunrise, and
Vice President-Marketing of Sunrise Capital Partners. His academic background
includes studies at the University of Cincinnati where he majored in business
administration. Mr. Ehrlich joined Sunrise in 1986 after having been a long-time
investor with Sunrise. Prior to assuming responsibilities for marketing and
public relations for Sunrise, Mr. Ehrlich was an independent businessman and
investor.
Marie Laufik, age 46, is a Vice President and Director of Sunrise, and Vice
President-Trading of Sunrise Capital Partners. She received a degree in
Economics from the University of Prague, Czechoslovakia before joining a
Czechoslovakian import/export company. She held a position with this firm for
nine years before immigrating to the United States. From 1986 through 1988, Mrs.
Laufik was a commodity trader for Cresta Commodities. Mrs. Laufik joined Sunrise
on August 8, 1988 and currently oversees trading room procedures.
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The Davis Family Trust, dated October 12, 1989, is a Director and the Sole
Shareholder of Sunrise; Gary B. Davis and his wife, Elissa Davis, are Trustees
and the sole beneficiaries of this Trust. Elissa Davis, age 49, is a principal
of Sunrise and Sunrise Capital Partners by virtue of her role as a Trustee of
the Davis Family Trust. Mrs. Davis is not active in the management of Sunrise or
Sunrise Capital Partners and has not been involved in any other business
activities during the past five years.
Sunrise, Sunrise Capital Partners, their principals and their affiliates
intend to trade or to continue to trade commodity interests for their own
accounts. Limited Partners will not be permitted to inspect the personal trading
records of Sunrise, Sunrise Capital Partners, their principals, or their
affiliates.
Neither Sunrise nor any of its principals own any Units of the Partnership.
There have been no material administrative, civil or criminal actions
pending, on appeal or concluded during the five years preceding the date of this
Prospectus against Sunrise, Sunrise Capital Partners or any of their principals
or their affiliates.
DESCRIPTION OF SUNRISE'S TRADING APPROACH
Sunrise has historically traded three types of portfolios, all of which are
traded in accordance with the description below.
The first type of portfolio is a fully diversified futures portfolio which
follows approximately 15 different markets. Such markets include metals, grains,
petroleum, soft commodities, interest rates and currencies. The second type of
portfolio that is available for investment is a currency portfolio which trades
in currency futures contracts traded on the International Monetary Market
Division of the Chicago Mercantile Exchange and in forward currency contracts in
the interbank market. The currency portfolio follows approximately 13 different
currencies, including the British pound, the Canadian dollar, the German
deutschemark, the Australian dollar, the French franc, the Japanese yen, the
Swiss franc, Spanish peseta, Italian lira, Singapore dollar and Malaysian
ringgit. The third type of portfolio available for investment is the CIMCO
portfolio, which is derived from Sunrise's diversified portfolio. The CIMCO
portfolio was designed by Sunrise to include selected financial markets and
participates in foreign currency and crossrate trades, interest rates, precious
and industrial metals, and energy products.
Sunrise utilizes technical trend-following systems, trading a wide continuum
of time windows. Most of these time frames are decidedly long term by industry
standards. Pro-active money management strategies are designed to protect open
profits and to minimize exposure to non-directional markets. In providing
commodity trading advice to the Partnership, Sunrise trades the CIMCO portfolio.
Relying on technical analysis, Sunrise believes that future price movements
in all markets may be more accurately anticipated by analyzing historical price
movements within a quantitative framework rather than attempting to predict or
forecast changes in price through fundamental economic analysis. The trading
methodologies employed by Sunrise are based on programs analyzing a large number
of interrelated mathematical and statistical formulas and techniques which are
quantitative, proprietary in nature and which have been either learned or
developed by Dr. Davis, and which have been influenced by Dr. Forrest and Mr.
Slaughter. The profitability of the trading programs, traded pursuant to
technical analysis emphasizing mathematical and charting approaches, will depend
upon the occurrence in the future, as in the past, of major trends in some
markets. If there are no trends, the trading programs are likely to be
unprofitable.
Sunrise's trading systems attempt to detect a trend, or lack of a trend,
with respect to a particular futures interest in a program by analyzing price
movement and volatility over time. Sunrise's trading system consists of
multiple, independent and parallel systems, each designed and tested to seek out
and extract different market inefficiencies on different time horizons. These
systems will generate a signal to sell a "short" contract or purchase a "long"
contract based upon their identification of a price trend in the particular
futures interest. If the systems do not detect a price trend, a "neutral"
trading
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signal will be generated. While this neutral signal is designed to filter out
high-risk "whipsaw" markets, it is successful on only a limited basis.
Successful speculative futures interests trading employing trend-following
techniques, such as Sunrise's, depends to a large degree upon not trading
non-directional, volatile markets. Accordingly, to the extent that this signal
is not generated during a non-trading market, trading would likely be
unsuccessful because an account would trade such markets.
The number of losing transactions may exceed substantially the number of
profitable transactions. However, if Sunrise's approach is successful, these
losses should be more than offset by gains.
While Sunrise relies primarily on its mechanical, technical trading systems
in making investment decisions, the strategy does include the latitude to depart
from this approach if market conditions are such that, in the opinion of
Sunrise, execution of trades recommended by the mechanical systems would be
difficult or unusually risky. There may occur the rare instances in which
Sunrise will override the system to decrease market exposure. Any modification
of trading instructions could adversely affect the profitability of an account.
Among the possible consequences of such a modification would be (1) the entrance
of a trade at a price significantly worse than a system's signal price, (2) the
complete negation of a signal which subsequently would have produced a
profitable trade, or (3) the premature termination of an existing trade. Sunrise
is under no obligation to notify clients (including Limited Partners) of this
type of deviation from its mechanical systems, since it is an integral part of
its overall trading method.
A technical trading system consists of a series of fixed rules applied
systematically, however, the system still requires Sunrise make certain
subjective judgments. For example, Sunrise must select the markets it will
follow and futures interests it will actively trade, along with the contract
months in which it will maintain positions. Sunrise must also subjectively
determine when to liquidate positions in a contract month which is about to
expire and initiate a position in a more distant contract month.
Sunrise engages in ongoing research which may lead to significant
modifications from time to time. Sunrise will notify the General Partner if
modifications to its trading systems or portfolio structure are material.
Sunrise believes that the development of a commodity trading strategy is a
continual process. As a result of further analysis and research into the
performance of Sunrise's methods, changes have been made from time to time in
the specific manner in which these trading methods evaluate price movements in
various futures interests, and it is likely that similar revisions will be made
in the future. As a result of such modifications, the trading methods that may
be used by Sunrise in the future might differ from those presently being used.
Sunrise has discretionary authority to make all trading decisions including
upgrading or downgrading the trading size of the account of the Partnership to
reflect additions, withdrawals, trading profits, and/or trading losses, without
prior consultation or notice. In addition, Sunrise may from time to time adjust
the leverage applicable to the Partnership's assets allocated to Sunrise;
provided, however, any such adjustments will be consistent with the leverage
parameters described herein and the Partnership's overall investment objectives
and Trading Policies. Such adjustments may be in respect of certain markets or
in respect of the overall CIMCO investment portfolio. Factors which may affect
the decision to adjust leverage include: ongoing research, volatility of
individual markets, risk considerations, and Sunrise's subjective judgement and
evaluation of general market conditions. Adjustments to leverage may result in
greater profits or losses and increased brokerage costs. No assurance can be
given that any leverage adjustment will be to the financial advantage of Limited
Partners.
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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.
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 370 domestic and
international offices with over 8,800 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."
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CERTAIN LITIGATION
At any given time, DWR is involved in numerous legal actions, some of which
seek significant damages. On January 16, 1992, DWR, without admitting or denying
liability, consented to findings in an administrative proceeding brought by the
SEC that it failed to keep accurate records with respect to customer orders
relating to the primary distribution of securities of government sponsored
enterprises ("GSEs"). In that proceeding, DWR was censured, paid a civil money
penalty of $100,000, and was ordered to cease and desist from any future
violations of Section 17(a) of the 1934 Act and Rules 17a-3 and 17a-4 thereunder
in connection with the primary distribution of securities of GSEs.
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, 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, certain other limited partnership commodity pools of which Demeter
is the general partner, and certain trading advisors to those pools. Also, on
September 18 and 20, 1996 similar purported class actions were filed in the
Supreme Court of the State of New York, New York 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, 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.
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THE MANAGEMENT AGREEMENTS
Each 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
Each Management Agreement will have a term of two years, commencing from the
date of the First Closing. Thereafter, the Trading Advisor may terminate the
Management Agreement, upon 30 days' prior written notice by the Trading Advisor
to the Partnership. In addition, a Trading Advisor may terminate its Management
Agreement at any time without penalty or prior written notice under certain
other circumstances specified therein.
The Management Agreement also will terminate if the Partnership terminates.
In addition, the Management Agreement may be terminated by the Partnership
without penalty upon 15 days' prior written notice by the Partnership to the
Trading Advisor or, without penalty and without prior notice, under certain
other circumstances specified therein.
No assurance is given that the Partnership will be able to retain the
services of a new trading advisor if a 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 prior Management Agreement. The compensation
payable by the Partnership to each Trading Advisor for its services under its
Management Agreement is described under "Description of Charges to the
Partnership--1. The Trading Advisors."
LIABILITY AND INDEMNIFICATION
Each Management Agreement sets forth a standard of liability for the Trading
Advisor and also provides for certain indemnities of the Trading Advisor. See
"Fiduciary Responsibility".
OBLIGATIONS TO THE PARTNERSHIP
The Trading Advisors are engaged in the business of advising investors as to
the purchase and sale of futures interests. During the term of the Management
Agreements, the Trading Advisors, their 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 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 any 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. Each 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.
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REDEMPTIONS
Except as noted below, Units may be redeemed at the option of a Limited
Partner (or any assignee thereof) as of, but not before, the six-month end
following the closing at which such person first becomes a Limited Partner, in
the manner described herein. Thereafter, Units may be redeemed as of the end of
any month. However, any Unit redeemed at the end of the sixth or at or prior to
the twelfth, eighteenth or twenty-fourth month following the closing at which
such Unit is issued 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.
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. 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 December 31, 1995 and purchases Units 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 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 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 or such other restrictions being deemed to be the first Units purchased
at a closing. The foregoing redemption charges will be paid to DWR.
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 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 Securities and Exchange Commission 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 all 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 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 or market shall mean the settlement price on the exchange
or market 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 or
market upon which that futures interest shall be traded or
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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 contract
for such day. The market value of a futures interest traded on a foreign
exchange or market will 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
at which a person first becomes a Limited Partner, 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."
THE LIMITED PARTNERSHIP AGREEMENT
This Prospectus contains an explanation of the more significant terms and
provisions of the Limited Partnership Agreement of the Partnership, 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 March 21, 1991 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
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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
Agreements with the Trading Advisors. However, pursuant to the Management
Agreements, the General Partner has the right to make trading decisions at any
time at which a Trading Advisor becomes incapacitated or some other emergency
arises as a result of which a Trading Advisor is unable or unwilling to act and
the General Partner has not yet retained a successor trading advisor. See "The
Trading Advisors" and "The Management Agreements."
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 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.
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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 may be withheld in its sole discretion, 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 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.
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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 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
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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 individual or aggregate caps on such fees,
brokerage commissions, transaction fees and costs, ordinary administrative
expenses, net excess interest and 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.
PLAN OF DISTRIBUTION
The Units are being offered through DWR pursuant to a Selling Agreement
among the Partnership 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 60,000 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 are being offered for issuance at the First Closing, which is
currently scheduled to be held on December 2, 1996; PROVIDED, HOWEVER, that the
General Partner may at its discretion hold such First Closing at any time during
the Offering Period (as defined below). Units that remain unsold following the
First Closing may be offered for sale at a Second Closing, currently scheduled
to be held on January 2, 1997. Units that remain unsold following the Second
Closing may be offered for sale at a Third Closing, currently scheduled to be
held on February 3, 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 applicable closing. The
period from the date of this Prospectus through February 13, 1997 will be
referred to herein as the "Offering Period"; PROVIDED, HOWEVER, that the General
Partner may, in its discretion, extend the Offering Period to provide for
additional closings for the sale of Units, but in no event will the Offering
Period be extended beyond March 10, 1997. In the event of any such extension,
the term "Offering Period" shall be deemed to include such additional closings.
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, 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
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General Partner either rejects such subscription prior to a closing or accepts
such subscription at a closing. At all times during the Offering Period, and
prior to a 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 each 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 Advisors, 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 applicable closing for each Unit sold by them and
issued at such 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 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 December 31, 1995 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 at which such Units are issued are subject to certain
redemption charges payable to DWR. For example, if all 60,000 Units are sold at
the First Closing, the Net Asset Value per Unit remained at $1,624.40 per Unit
during the first twelve months following the First Closing, all Units were
subject to a redemption charge, and all Units were redeemed at the end of the
sixth month following the First Closing, DWR would receive $2,923,920 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.
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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 Advisors in connection with the offer and sale of Units with respect to
any misleading or untrue statement or alleged misleading or untrue statement of
a material fact or a material omission or alleged omission unrelated to the
Trading Advisors or their principals. The Partnership also has agreed to certain
indemnities of DWR in connection with the offer and sale of Units. See
"Fiduciary Responsibility."
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 IRAs), (ii) the proceeds from the redemption of five
units (or two units in the case of IRAs) from commodity pools other than the
Spectrum Series, or (iii) the proceeds from the redemption of 500 units (200
units in the case of IRAs) from one of the Spectrum Series of commodity pools
(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 Select Futures 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, a subscriber will
authorize the General Partner to redeem all or a portion of such subscriber's
interest in another commodity pool for which the General Partner serves as
general partner and commodity pool operator (subject to the terms of the
applicable limited partnership agreement) and use the proceeds of such
redemption (less any applicable redemption charges) to purchase Units.
In the 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
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or custodian of the plan authorize the General Partner and DWR to transfer the
subscription amount to the Dean Witter Select Futures 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 check of a subscriber will be issued subject to
the collection of the funds represented by such check. In the event that a check
of a subscriber for Units 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 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 applicable 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."
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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 (i) registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act") or (ii) sold to the plan as part of a public offering of such securities
pursuant to an effective registration statement under the 1933 Act, where the
security is then timely registered under Section 12(b) or Section 12(g) of the
1934 Act. It is expected that the Units will meet 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 any Trading Advisor or any of their respective
affiliates either: (a) has investment discretion with respect to the investment
of such plan assets; (b) has authority or responsibility to give or regularly
gives investment advice with respect to such plan assets for a fee and pursuant
to an agreement or understanding that such advice will serve as a primary basis
for investment decisions with respect to such plan assets and that such advice
will be based on the particular investment needs of the plan; or (c) is an
employer maintaining or contributing to such plan.
Subscribing for Units 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 ADVISORS 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.
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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.
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
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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. According to a 1983 study, "The Potential Role of Managed
Commodity-Financial Futures Accounts (and/or Funds) in Portfolios of Stocks and
Bonds" by the late John Lintner, Ph.D. of Harvard University, "Diversification
can substantially reduce the risks involved in portfolio returns and provide
superior returns relative to the risks incurred." Further, according to a 1993
research report by Barclay Trading Group, "Correlation Trends Changing in the
'90s," "Monthly returns for stocks and managed futures have moved in opposite
directions in approximately 57% of all months during the past ten years. The two
were both positive in 31% of all months, and both negative in only 12% of the
monthly periods."
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 investor's overall portfolio.
Each 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.
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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.
DIVERSIFIED PROFESSIONAL TRADING MANAGEMENT. Trading decisions for the
Partnership are made by Trading Advisors retained by the General Partner. See
"The Trading Advisors." The trading approaches employed on behalf of the
Partnership by the Trading Advisors 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 obtain results
consistent with such performance or that the Partnership will not incur
substantial losses.
A Limited Partner's investment in the Partnership is allocated among the
Trading Advisors. This permits a Limited Partner to receive the benefits from
different trading approaches employed by the Partnership.
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 First 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. 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.
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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 Select Futures Fund L.P. as of
December 31, 1995 and 1994 and the statements of financial condition of Demeter
Management Corporation as of December 31, 1995 and 1994 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.
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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 of 3/4 of 1% per month 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 commodity contracts or options thereon.
"Daily Limits" -- Limits imposed by commodity exchanges on the amount of
fluctuation in commodity contract 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
commodity interest contract 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 commodity interest contract 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 commodity interest contract traded on an exchange shall
mean the settlement price on the exchange on which the particular commodity
interest contract shall be traded by the Partnership on the day with respect to
which Net Assets shall be determined, PROVIDED, HOWEVER, that if a contract
could not have been liquidated on such day due to the operation of daily limits
or other rules of the exchange upon which that contract shall be traded or
otherwise, the settlement price on the first subsequent day on which the
contract could have been liquidated shall be the market value of such contract
for such day. The market value of a forward
87
<PAGE>
contract or a futures or option contract 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 contract.
"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
commodity contracts.
"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 commodity
contract when the contract price reaches the specified stop order price. Stop
orders become market orders when the stop price is reached.
"Trading Profits" -- Net commodity interest contract trading profits
(realized and unrealized) earned by the Partnership, 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 extraordinary expenses)
directly attributable to commodity interest contract trading, with such trading
profits and items of decrease determined from the end of the last calendar
quarter in which an incentive fee was earned by the Trading Advisor or, if no
incentive fee has been earned previously by the Trading Advisor, from the date
that the Partnership commenced trading to the end of the calendar quarter as of
which such incentive fee calculation is made. No incentive fee will be paid with
respect to interest income of the Partnership.
"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 commodity 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.
88
<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-9]
"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-3]
"Commodity Broker" -- Any Person who engages in the business of effecting
transactions in Commodity Contracts for the account of others or for his own
account. ["DWR" -- page A-4; "commodity broker" -- page A-10]
"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.
89
<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 -- pages
A-15-A-16]
90
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Limited Partners and the General Partner
Dean Witter Select Futures Fund L.P.:
We have audited the accompanying statements of financial condition of Dean
Witter Select Futures Fund L.P. (the "Partnership") as of December 31, 1995 and
1994 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, 1995.
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 Select Futures Fund L.P. as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 21, 1996
New York, New York
F-1
<PAGE>
DEAN WITTER SELECT FUTURES FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994
JUNE 30, ---------------- ----------------
1996
---------------- $ $
$
(UNAUDITED)
<S> <C> <C> <C>
Equity in Commodity futures trading accounts:
Cash...................................................... 141,263,234 161,132,662 147,127,130
Net unrealized gain on open contracts..................... 4,861,543 17,428,211 22,085,555
Net option premiums paid.................................. 26,600 17,020 385,150
---------------- ---------------- ----------------
Total Trading Equity.................................. 146,151,377 178,577,893 169,597,835
Interest receivable (DWR)................................. 499,127 592,357 661,445
Receivable from DWR....................................... 141,286 172,749 1,353,800
---------------- ---------------- ----------------
Total Assets.......................................... 146,791,790 179,342,999 171,613,080
---------------- ---------------- ----------------
---------------- ---------------- ----------------
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C> <C>
LIABILITIES:
Redemptions payable....................................... 2,390,141 1,551,357 2,211,482
Accrued management fees................................... 365,673 446,105 427,191
Accrued brokerage commissions (DWR)....................... 360,531 664,318 641,040
Accrued administrative expenses........................... 101,330 164,267 103,125
Accrued transaction fees and costs........................ 60,766 70,692 40,914
---------------- ---------------- ----------------
Total Liabilities..................................... 3,278,441 2,896,739 3,423,752
---------------- ---------------- ----------------
PARTNERS' CAPITAL:
Limited Partners (85,349.491, 93,318.367 and 110,195.320
units, respectively)..................................... 141,310,046 173,965,425 166,182,436
General Partner (1,330.767 units)......................... 2,203,303 2,480,835 2,006,892
---------------- ---------------- ----------------
Total Partners' Capital............................... 143,513,349 176,446,260 168,189,328
---------------- ---------------- ----------------
Total Liabilities and Partners' Capital............... 146,791,790 179,342,999 171,613,080
---------------- ---------------- ----------------
---------------- ---------------- ----------------
NET ASSET VALUE PER UNIT.................................... 1,655.66 1,864.21 1,508.07
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
DEAN WITTER SELECT FUTURES FUND L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------------ ----------------------------------------------
1995 1995 1994 1993
-------------- -------------- -------------- --------------
$ $ $ $
1996 (UNAUDITED)
--------------
$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Trading Profit (Loss):
Realized....................... (1,406,672) 90,756,175 65,987,157 19,134,352 12,348,813
Net change in unrealized....... (12,566,668) (3,342,474) (4,657,344) (7,758,820) 28,172,416
-------------- -------------- -------------- -------------- --------------
Total Trading Results...... (13,973,340) 87,413,701 61,329,813 11,375,532 40,521,229
Interest income (DWR)............ 3,142,338 4,065,579 7,969,749 6,044,870 2,410,096
-------------- -------------- -------------- -------------- --------------
Total Revenues............. (10,831,002) 91,479,280 69,299,562 17,420,402 42,931,325
-------------- -------------- -------------- -------------- --------------
EXPENSES
Brokerage commissions (DWR)...... 6,161,235 7,836,230 14,173,695 15,551,182 8,893,981
Management fees.................. 2,319,074 2,991,042 5,626,908 5,452,353 3,165,432
Transaction fees and costs....... 454,505 876,504 1,589,795 1,652,264 918,652
Administrative expenses.......... 55,000 64,000 148,000 126,000 141,000
Incentive fees................... (172,663) 8,534,385 8,707,049 4,441,510 3,420,048
-------------- -------------- -------------- -------------- --------------
Total Expenses............. 8,817,151 20,302,161 30,245,447 27,223,309 16,539,113
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS).................. (19,648,153) 71,177,119 39,054,115 (9,802,907) 26,392,212
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Net Income (Loss) Allocation:
Limited Partners................. (19,370,621) 70,282,426 38,580,172 (9,695,068) 26,080,515
General Partner.................. (277,532) 894,693 473,943 (107,839) 311,697
Net Income (Loss) Per Unit:
Limited Partners................. (208.55) 672.32 356.14 (81.46) 467.14
General Partner.................. (208.55) 672.32 356.14 (81.46) 467.14
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DEAN WITTER SELECT FUTURES FUND L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL TOTAL
UNITS OF ---------------- PARTNER ----------------
PARTNERSHIP -------------
INTEREST $ $
-------------- $
<S> <C> <C> <C> <C>
Partners' Capital, December 31, 1992.......... 54,260.341 60,187,959 713,034 60,900,993
Supplemental Offering......................... 75,078.297 116,617,866 1,050,000 117,667,866
Net Income.................................... -- 26,080,515 311,697 26,392,212
Redemptions................................... (4,009.010) (5,745,455) -- (5,745,455)
-------------- ---------------- ------------- ----------------
Partners' Capital, December 31, 1993.......... 125,329.628 197,140,885 2,074,731 199,215,616
Net Loss...................................... -- (9,695,068) (107,839) (9,802,907)
Subscription Adjustment....................... -- (40,000) 40,000 --
Redemptions................................... (13,803.541) (21,223,381) -- (21,223,381)
-------------- ---------------- ------------- ----------------
Partners' Capital, December 31, 1994.......... 111,526.087 166,182,436 2,006,892 168,189,328
Net Income.................................... -- 38,580,172 473,943 39,054,115
Redemptions................................... (16,876.953) (30,797,183) -- (30,797,183)
-------------- ---------------- ------------- ----------------
Partners' Capital, December 31, 1995.......... 94,649.134 173,965,425 2,480,835 176,446,260
Net Loss...................................... -- (19,370,621) (277,532) (19,648,153)
Redemptions................................... (7,968.876) (13,284,758) -- (13,284,758)
-------------- ---------------- ------------- ----------------
Partner's Capital June 30, 1996............... 86,680.258 $ 141,310,046 $ 2,203,303 $ 143,513,349
-------------- ---------------- ------------- ----------------
-------------- ---------------- ------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DEAN WITTER SELECT FUTURES FUND L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE
30,
------------------------------
1995
-------------- FOR THE YEARS ENDED DECEMBER 31,
$ -------------------------------------------------
(UNAUDITED) 1995 1994 1993
1996 --------------- --------------- ---------------
-------------- $ $ $
$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss).......... (19,648,153) 71,177,119 39,054,115 (9,802,907) 26,392,212
Noncash item included in
net income (loss):
Net change in
unrealized.............. 12,566,668 3,342,474 4,657,344 7,758,820 (28,172,416)
(Increase) decrease in
operating assets:
Interest receivable
(DWR)................... (326,378) (119,577) 69,088 (276,019) (240,754)
Receivable from DWR...... 451,071 163,420 1,181,051 (771,457) (567,664)
Net option premiums...... (9,580) (2,260,579) 368,130 (385,150) --
Increase (decrease) in
operating liabilities:
Accrued brokerage
commissions (DWR)....... (303,787) 51,125 23,278 10,720 500,408
Accrued management
fees.................... (80,432) 139,254 18,914 (77,526) 345,373
Accrued administrative
expenses................ (62,937) 13,187 61,142 (16,097) 69,661
Accrued transaction fees
and costs............... (9,926) 79,923 29,778 (4,749) 36,157
Incentive fees payable... -- 5,956,428 -- (1,295,256) 1,295,256
-------------- -------------- --------------- --------------- ---------------
Net cash provided by (used
for) operating
activities................ (7,423,454) 78,542,774 45,462,840 (4,859,621) (341,767)
-------------- -------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Offering of units........ -- -- -- -- 117,667,866
Increase (decrease) in
redemptions payable..... 838,784 411,570 (660,125) 1,340,331 (1,806,017)
Redemptions of units..... (13,284,758) (21,283,926) (30,797,183) (21,223,381) (5,745,455)
-------------- -------------- --------------- --------------- ---------------
Net cash provided by (used
for) financing
activities................ (12,445,974) (21,695,496) (31,457,308) (19,883,050) 110,116,394
-------------- -------------- --------------- --------------- ---------------
Net increase (decrease) in
cash...................... (19,869,428) 56,847,278 14,005,532 (24,742,671) 109,774,627
Balance at beginning of
period.................... 161,132,662 147,127,130 147,127,130 171,869,801 62,095,174
-------------- -------------- --------------- --------------- ---------------
Balance at end of period... 141,263,234 203,974,408 161,132,662 147,127,130 171,869,801
-------------- -------------- --------------- --------------- ---------------
-------------- -------------- --------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DEAN WITTER SELECT FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Dean Witter Select 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 (the "General Partner"). The commodity broker is Dean Witter
Reynolds Inc. ("DWR"). Both DWR and the General Partner are wholly-owned
subsidiaries of Dean Witter, Discover & Co. The General Partner has retained EMC
Capital Management, Inc. ("EMC"), Rabar Market Research, Inc. ("Rabar") and
Sunrise Capital Management, Inc. ("Sunrise") as the trading advisors of the
Partnership.
The General Partner is required to maintain a 1% minimum interest in the
equity of the Partnership and income (losses) are shared by the General and
Limited Partners based upon their proportional ownership interests.
During 1993 additional units were offered to the public at a price equal to
100% of the net asset value per unit as of September 30, 1993. This resulted in
$117,667,866 being added to the Partnership.
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, commodity options 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. Monthly, DWR pays the Partnership 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 such 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 net asset or liability related to
unrealized gains or losses on open contracts and the net option premiums paid
and/or received. 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, to a maximum of 3/4 of 1% per month of the Net
Assets allocated to each trading advisor as defined in the Limited Partnership
Agreement.
Transaction fees and costs are accrued on a half-turn basis. Such
transaction fees and costs, exclusive of "give-up" fees, are capped at 1/12 of
1% per month of the Net Assets allocated to each trading advisor.
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
F-6
<PAGE>
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. The General Partner bears all other
operating expenses.
REDEMPTIONS--Effective October 1, 1993 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 day advance notice by
redemption form to the General Partner. However, any Units redeemed at or prior
to the end of the twelfth, eighteenth, or twenty fourth full months following
the closing at which such person first becomes a limited partner, may be
assessed a redemption charge equal to 3%, 2% or 1%, respectively, of the Net
Asset Value per Unit on the date of such redemption. Prior to October 1, 1993
redemptions were restricted to the calendar quarter. Limited Partners who
obtained their Units via an exchange from another DWR sponsored commodity pool
are not subject to the six month holding period or the redemption charges.
DISTRIBUTIONS--Distributions, other than on redemptions of Units, are made
on a pro-rata basis at the sole discretion of the General Partner. 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 ADVISORS
Compensation to EMC, Rabar and Sunrise consists of a management fee and an
incentive fee as follows:
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/4
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 will pay a quarterly incentive fee to each
trading advisor equal to 17.5% of the trading advisor's "Trading Profits", as
defined in the Limited Partnership Agreement, experienced by the Net Assets
allocated to such trading advisor as of the end of each calendar quarter. If a
trading advisor has experienced "Trading Losses" with respect to its allocated
Net Assets at the time of a supplemental closing, the trading advisor must earn
back such losses plus a pro rata amount related to the funds allocated to the
trading advisor at a supplemental closing before the trading advisor is eligible
for an incentive fee. 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 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 such
advisor on those redemptions in the month of such redemptions.
F-7
<PAGE>
4. FINANCIAL INSTRUMENTS
The Partnership trades futures, options 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 June 30, 1996, December 31, 1995 and December 31, 1994, open
contracts were:
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
------------------------------------------------
1996 1995 1994
-------------- -------------- ----------------
$ $ $
(UNAUDITED)
<S> <C> <C> <C>
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase..................................... 96,651,000 925,367,000 67,681,000
Commitments to Sell......................................... 313,468,000 103,322,000 1,019,446,000
Commodity Futures:
Commitments to Purchase..................................... 48,636,000 293,591,000 117,919,000
Commitments to Sell......................................... 72,716,000 49,216,000 83,412,000
Options Written............................................. -- 894,000 --
Foreign Futures:
Commitments to Purchase..................................... 288,478,000 913,417,000 117,224,000
Commitments to Sell......................................... 245,663,000 42,447,000 294,985,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS
Commitments to Purchase..................................... 18,257,000 7,612,000 326,211,000
Commitments to Sell......................................... 10,646,000 40,963,000 475,682,000
</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 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 $4,861,543, $17,428,211 and $22,085,555 at June 30, 1996,
and December 31, 1995 and 1994, respectively.
Of the $4,861,543 net unrealized gain on open contracts at June 30, 1996,
$4,733,944 related to exchange-traded futures contracts and $127,599 related to
off-exchange-traded forward currency contracts. Of the $17,428,211 net
unrealized gain on open contracts at December 31, 1995, $16,901,032 related to
exchange-traded futures contracts and $527,179 related to off-exchange-traded
forward currency contracts. Of the $22,085,555 net unrealized gain on open
contracts at December 31, 1994, $22,292,720 related to exchange-traded futures
contracts and $(207,165) related to off-exchange-traded forward currency
contracts.
Exchange-traded futures contracts held by the Partnership at June 30, 1996,
and December 31, 1995 and 1994 mature through June 1997, and December 1996 and
September 1995, respectively. Off-exchange-traded forward currency contracts
held by the Partnership at June 30, 1996, and December 31, 1995 and 1994 mature
through July 1996, January 1996 and March 1995, 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 and options
F-8
<PAGE>
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 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 and option contracts including an
amount equal to the net unrealized gain on all open futures and option contracts
which funds totaled $145,997,178, $178,033,694 and $169,419,850 at June 30,
1996, and December 31, 1995 and 1994, 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 and option 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 six months ended June 30, 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........................................................... 328,069,000 316,339,000
Commodity Futures........................................................... 966,332,000 27,879,000
Foreign Futures............................................................. 430,699,000 144,055,034
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS:............................... 15,938,162 37,535,000
</TABLE>
For the year ended December 31, 1995, 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.............................................................. 505,189,000 343,753,000
Commodity Futures.............................................................. 152,820,000 103,015,000
Foreign Futures................................................................ 506,117,000 179,492,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS................................... 99,808,000 158,150,000
</TABLE>
5. SUBSEQUENT EVENTS (UNAUDITED)
On August 13, 1996, the General Partner reopened the Partnership for
additional investment and registered with the Securities and Exchange Commission
60,000 Units to be offered to investors for a limited time in a public offering.
Effective as of 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) allocated to each Trading Advisor.
Effective on the day of the First Closing in the new public offering, DWR
will credit the Partnership 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.
On September 6, 10, and 20, 1996, 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, certain other limited partnership commodity pools of which Demeter
is the general partner, and certain trading advisors to those pools. Also, on
September 18 and 20, 1996 similar purported class actions were filed in the
Supreme Court of the State of New York, New York 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, fraudulent and unfair
business practices, unjust
F-9
<PAGE>
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 the Partnership.
6. UNAUDITED INTERIM INFORMATION
The unaudited financial statements included herein and the related financial
information in the footnotes include, in the opinion of management, all
adjustments (including normal and recurring adjustments) necessary for a fair
presentation of the financial position at June 30, 1996.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Demeter Management Corporation:
We have audited the accompanying statements of financial condition of Demeter
Management Corporation (a wholly-owned subsidiary of Dean Witter, Discover &
Co.) (the "Company") as of December 31, 1995 and 1994. 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, 1995 and 1994 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
March 1, 1996
(Except for Note 1, for which the date
is March 31, 1996.)
New York, New York
F-11
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF DEAN WITTER, DISCOVER & CO.)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------- --------------------------------
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
$ $ $
(UNAUDITED)
Investments in affiliated partnerships (Note 2).......... 16,549,236 17,788,814 12,833,311
Income taxes receivable.................................. 153,137 -- --
Receivable from affiliated partnership................... 1,095 1,154 1,268
---------------- --------------- ---------------
TOTAL ASSETS..................................... 16,703,468 17,789,968 12,834,579
---------------- --------------- ---------------
---------------- --------------- ---------------
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C>
LIABILITIES:
Payable to Parent (Note 3)........................... 15,043,753 15,314,134 11,630,183
Accrued expenses..................................... 25,554 32,579 20,079
---------------- --------------- ---------------
TOTAL LIABILITIES................................ 15,069,307 15,346,713 11,650,262
---------------- --------------- ---------------
STOCKHOLDER'S EQUITY:
Common stock, no par value:
Authorized 1,000 shares;
Issued and outstanding 100 shares
at stated value of $500 per share................ 50,000 50,000 50,000
Additional paid-in capital........................... 111,170,000 111,170,000 98,170,000
Retained earnings.................................... 1,484,161 2,293,255 1,034,317
---------------- --------------- ---------------
112,704,161 113,513,255 99,254,317
Less: Notes receivable from Parent (Note 4).......... (111,070,000) (111,070,000) (98,070,000)
---------------- --------------- ---------------
TOTAL STOCKHOLDER'S EQUITY....................... 1,634,161 2,443,255 1,184,317
---------------- --------------- ---------------
TOTAL LIABILITIES AND 16,703,468 17,789,968 12,834,579
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
(INFORMATION WITH RESPECT TO 1996 IS UNAUDITED)
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of
Dean Witter, Discover & Co. (the "Parent").
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. ("DWPGF")),
Dean Witter Principal Guaranteed Fund II L.P. ("DWPGFII"), Dean Witter Principal
Plus Fund L.P., Dean Witter Principal Plus Fund Management L.P., Dean Witter
Portfolio Strategy Fund L.P. (formerly Dean Witter Principal Secured Futures
Fund L.P.), 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., Dean Witter Institutional
Account II L.P., DWFCM International Access Fund L.P., Dean Witter Anchor
Institutional Balanced Portfolio Account I L.P., Dean Witter Spectrum Balanced
L.P., Dean Witter Spectrum Strategic L.P., Dean Witter Spectrum Technical L.P.,
DWR Chesapeake L.P. and DWR Institutional Balanced Portfolio Account III L.P.
In November of 1995, Demeter entered into a limited partnership agreement as
General Partner in DWR/JWH Futures Fund L.P. ("JWH"), a commodity pool 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
JWH was $75,000.
Management terminated DWPGFII as of March 31, 1996. DWPGFII 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.
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 29, 1995 DWDFF
registered with the Securities and Exchange Commission 75,000 units which were
offered to investors for a limited time in a public offering.
INCOME TAXES--The results of operations of Demeter are included in the
consolidated federal income tax return of the Parent. Income tax expense is
calculated on a separate company basis. 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.
F-13
<PAGE>
The total assets, liabilities and partners' capital of all the funds managed
by Demeter at June 30, 1996, December 31, 1995 and December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------- --------------------------------
1996 1995 1994
---------------- ---------------- --------------
$ $ $
(UNAUDITED)
<S> <C> <C> <C>
Total assets................................... 1,007,299,365 1,091,082,360 907,037,211
Total liabilities.............................. 25,029,889 20,934,451 22,472,852
Total partners' capital........................ 982,269,476 1,070,147,909 884,564,359
</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 PARENT
The payable to Parent is primarily for amounts due for the purchase of
partnership investments and income tax payments made by the Parent on behalf of
Demeter.
4. NET WORTH REQUIREMENT
At June 30, 1996, December 31, 1995 and 1994, Demeter held non-interest
bearing notes from the Parent that were payable on demand. These notes were
received in connection with additional capital contributions aggregating
$111,070,000, $111,070,000 and $98,070,000, respectively.
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 the Parent are included in net
worth for purposes of this calculation.
5. SUBSEQUENT EVENTS (UNAUDITED)
On August 13, 1996, management reopened DWSFF for additional investment and
registered with the Securities and Exchange Commission 60,000 Units to be
offered to investors for a limited time in a public offering.
On September 6, 10, and 20, 1996, similar purported class actions were filed
in the Superior Court of the State of California, County of Los Angeles, on
behalf of all purchasers of interests in limited partnership commodity pools
sold by Dean Witter Reynolds Inc. ("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"), certain limited partnership commodity pools of which Demeter
is the general partner, and certain trading advisors to those pools. Also, on
September 18 and 20, 1996 similar purported class actions were filed in the
Supreme Court of the State of New York, New York 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, 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 of any of the Dean
Witter Parties.
F-14
<PAGE>
6. UNAUDITED INTERIM INFORMATION
The unaudited financial statement included herein and the related financial
information in the footnotes include, in the opinion of management, all
adjustments (including normal and recurring adjustments) necessary for a fair
presentation of the financial position at June 30, 1996.
F-15
