UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[No Fee Required]
For the year ended December 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[No Fee Required]
For the transition period from
________________to___________________ Commission File Number 0-26280
DEAN WITTER SPECTRUM STRATEGIC L.P.
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(Exact name of registrant as specified in its Limited Partnership Agreement)
DELAWARE 13-3782225
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, - 62nd Flr., New York, N.Y. 10048
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check-mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check-mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment of this Form 10-K. [X]
State the aggregate market value of the Units of Limited Partnership
Interest held by non-affiliates of the registrant. The aggregate market value
shall be computed by reference to the price at which units were sold as of a
specified date within 60 days prior to the date of filing: $67,188,263.21 at
January 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
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DEAN WITTER SPECTRUM STRATEGIC L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
Page No.
DOCUMENTS INCORPORATED BY REFERENCE............................................1
Part I.
Item 1. Business............................................................2-5
Item 2. Properties............................................................5
Item 3. Legal Proceedings...................................................5-7
Item 4. Submission of Matters to a Vote of Security Holders...................7
Part II.
Item 5. Market for the Registrant's Partnership
Units and Related Security Holder Matters.............................8
Item 6. Selected Financial Data...............................................9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10-19
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.......................................................19-32
Item 8. Financial Statements and Supplementary Data..........................32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................32
Part III.
Item 10. Directors and Executive Officers of the Registrant................33-37
Item 11. Executive Compensation...............................................37
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................................37
Item 13. Certain Relationships and Related Transactions.......................38
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K..................................................39
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference as follows:
Documents Incorporated Part of Form 10-K
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Partnership's Prospectus dated I
January 21, 1999
Annual Report to Dean Witter II, III and IV
Spectrum Series Limited Partners
for the year ended December 31, 1998
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PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Spectrum Strategic L.P.
(the "Partnership") is a Delaware limited partnership organized to engage in the
speculative trading of futures, forward and options contracts on commodities and
commodities related interests including foreign currencies, financial
instruments, and physical commodities (collectively, "futures interests"). The
Partnership is one of the Dean Witter Spectrum Series of funds, comprised of the
Partnership, Dean Witter Spectrum Global Balanced L.P., Dean Witter Spectrum
Technical L.P. and Dean Witter Spectrum Select L.P. Dean Witter Spectrum Select
L.P., (formerly "Dean Witter Select Futures Fund L.P.",) became one of the Dean
Witter Spectrum Series of Funds May 31, 1998. The general partner is Demeter
Management Corporation ("Demeter"). The non-clearing commodity broker is Dean
Witter Reynolds Inc. ("DWR") and an unaffiliated clearing commodity broker, Carr
Futures Inc. ("Carr"), provides clearing and execution services. Both Demeter
and DWR are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
("MSDW"). The Trading Advisors to the Partnership are Blenheim Investments,
Inc., Willowbridge Associates Inc. and Stonebrook Capital Management, Inc.
("Stonebrook"), (collectively, the "Trading Advisors").
Effective April 30, 1998, A Gary Shilling & Co. Inc. ("Shilling"), an
original trading advisor to the Partnership, was terminated and all
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assets previously managed by Shilling were allocated to Stonebrook effective
June 1, 1998. Effective March 2, 1999, Stonebrook was terminated as a Trading
Advisor to the Partnership.
Units of Limited Partnership Interest ("Units") are offered at monthly
closings at a price equal to 100% of the Net Asset Value per Unit as of the
close of business on the last day of each month.
The Partnership's Net Asset Value per Unit as of December 31, 1998 was
$11.55, representing an increase of 7.84 percent from the Net Asset Value per
Unit of $10.71 on December 31, 1997. For a more detailed description of the
Partnership's business see subparagraph (c).
(b) Financial Information about Industry Segments. For financial
information reporting purposes the Partnership is deemed to engage in one
industry segment, the speculative trading of futures interests. The relevant
financial information is presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the business
of speculative trading of futures interests, pursuant to trading instructions
provided by the Trading Advisors. For a detailed description of the different
facets of the Partnership's business, see those portions of the Partnership's
prospectus, dated January 21, 1999, (the "Prospectus"), incorporated by
reference in this Form 10-K, set forth on the next page.
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Facets of Business
1. Summary 1. "Summary of the Prospectus" (Pages
1-6 of the Prospectus).
2. Futures, Options and Forward 2. "The Futures, Options and Forward
Markets Markets" (Pages 83-87 of the
Prospectus).
3. Partnership's Trading Arrangements 3. "Investment Programs, Use of
and Policies Proceeds and Trading Policies"
(Pages 20-25 of the Prospectus).
"The Trading Advisors" (Pages 49-79
of the Prospectus).
4. Management of the Partnership 4. "The Trading Advisors - The
Management Agreements" (Page 49 of
the Prospectus), "The General
Partner" (Pages 47-48 of the
Prospectus), "The Commodity
Brokers" (Page 82 of the
Prospectus) and "The Limited
Partnership Agreements" (Pages
87-91 of the Prospectus).
5. Taxation of the Partnership's 5. "Material Federal Income Tax
Limited Partners Considerations" and "State and
Local Income Tax Aspects" (Pages
96-102 of the Prospectus).
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The Partnership has not engaged in any operations in foreign countries;
however, the Partnership (through the commodity brokers) enters into forward
contract transactions where foreign banks are the
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contracting party and trades in futures interests on foreign exchanges.
Item 2. PROPERTIES
The executive and administrative offices are located within the offices of
DWR. The DWR offices utilized by the Partnership are located at Two World Trade
Center, 62nd Floor, New York, NY 10048.
Item 3. LEGAL PROCEEDINGS
On September 6, 10, and 20, 1996, and on March 13, 1997, similar purported
class actions were filed in the Superior Court of the State of California,
County of Los Angeles, on behalf of all purchasers of interests in limited
partnership commodity pools sold by DWR. Named defendants include DWR, Demeter,
Dean Witter Futures & Currency Management, Inc. ("DWFCM"), MSDW (all such
parties referred to hereafter as the "Dean Witter Parties"), certain other
limited partnership commodity pools of which Demeter is the general partner, and
certain trading advisors to those pools. On June 16, 1997, the plaintiffs in the
above actions filed a consolidated amended complaint, alleging, among other
things, that the defendants committed fraud, deceit, negligent
misrepresentation, various violations of the California Corporations Code,
intentional and negligent breach of fiduciary duty, fraudulent and unfair
business practices, unjust enrichment, and conversion in the sale and operation
of the various limited partnership commodity pools. Similar purported class
actions were also filed on September 18 and 20,
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1996, in the Supreme Court of the State of New York, New York County, and on
November 14, 1996 in the Superior Court of the State of Delaware, New Castle
County, against the Dean Witter Parties and certain trading advisors on behalf
of all purchasers of interests in various limited partnership commodity pools
sold by DWR. A consolidated and amended complaint in the action pending in the
Supreme Court of the State of New York was filed on August 13, 1997, alleging
that the defendants committed fraud, breach of fiduciary duty, and negligent
misrepresentation in the sale and operation of the various limited partnership
commodity pools. On December 16, 1997, upon motion of the plaintiffs, the action
pending in the Superior Court of the State of Delaware was voluntarily dismissed
without prejudice. The New York Supreme Court dismissed the New York action in
November 1998, but granted plaintiffs leave to file an amended complaint, which
they did in early December 1998. The defendants have filed a motion to dismiss
the amended complaint with prejudice on February 1, 1999. The complaints seek
unspecified amounts of compensatory and punitive damages and other relief. It is
possible that additional similar actions may be filed and that, in the course of
these actions, other parties could be added as defendants. The Dean Witter
Parties believe that they have strong defenses to, and they will vigorously
contest, the actions. Although the ultimate outcome of legal proceedings cannot
be predicted with certainty,
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it is the opinion of management of the Dean Witter Parties that the resolution
of the actions will not have a material adverse effect on the financial
condition or the results of operations of any of the Dean Witter Parties.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS
There is no established public trading market for Units of the Partnership.
The number of holders of Units at December 31, 1998 was approximately 9,869. No
distributions have been made by the Partnership since it commenced trading
operations on November 2, 1994. Demeter has sole discretion to decide what
distributions, if any, shall be made to investors in the Partnership. No
determination has yet been made as to future distributions.
Units are sold at monthly closings as of the last day of each month at a
price equal to 100% of the Net Asset Value of a Unit as of the date of such
monthly closing.
Through December 31, 1998, 8,357,920.073 Units have been sold, leaving
4,142,079.927 Units unsold as of December 31, 1998. The aggregate price of the
Units sold through December 31, 1998 is $88,241,455.
Since no expenses are chargeable against proceeds, 100% of the proceeds of
the offering have been applied to the working capital of the Partnership for use
in accordance with the "Investment Programs, Use of Proceeds and Trading
Policies" section of the Prospectus.
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<PAGE>
Item 6. SELECTED FINANCIAL DATA (in dollars)
<TABLE>
<CAPTION>
For the
Period from
November 2, 1994
For the Years Ended December 31, commencement of
--------------------------------------------------------- operations) to
1998 1997 1996 1995 December 31, 1994
---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
Total Revenues 13,096,775 5,989,330 4,905,380 5,747,054 201,007
(including interest)
Net Income (Loss) 5,015,095 (1,064,879) (806,863) 2,683,129 5,794
Net Income (Loss) 0.84 0.04 (.39) 1.05 .01
Per Unit (Limited &
General Partners)
Total Assets 71,445,333 61,010,043 47,089,676 33,049,282 12,042,772
Total Limited 69,671,636 58,482,349 44,645,423 32,132,595 11,791,839
Partners' Capital
Net Asset Value Per 11.55 10.71 10.67 11.06 10.01
Unit of Limited
Partnership Interest
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate futures interest
trading accounts. Such assets are held in either non-interest bearing bank
accounts or in securities approved by the Commodity Futures Trading Commission
("CFTC") for investment of customer funds. The Partnership's assets held by DWR
and Carr may be used as margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in futures interests, it is expected that
the Partnership will continue to own such liquid assets for margin purposes.
The Partnership's investment in futures interests may, from time to time,
be illiquid. Most United States futures exchanges limit fluctuations in certain
futures interest prices during a single day by regulations referred to as "daily
price fluctuations limits" or "daily limits." Pursuant to such regulations,
during a single trading day no trades may be executed at prices beyond the daily
limit. If the price for a particular futures interest has increased or decreased
by an amount equal to the daily limit, positions in such futures interest can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Futures interests prices have occasionally moved the
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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.
There is no limitation on daily price moves in trading forward contracts on
foreign currency. The markets for some world currencies have low trading volume
and are illiquid, which may prevent the Partnership from trading in potentially
profitable markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market conditions could
result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it expect to have,
any capital assets. Future redemptions, exchanges and sales of additional Units
will affect the amount of funds available for investment in futures interests in
subsequent periods. Since they are at the discretion of Limited Partners, it is
not possible to estimate the amount and therefore, the impact of future
redemptions, exchanges or sales of additional Units.
Results of Operations. As of December 31, 1998, the Partnership's total
capital was $70,421,775, an increase of $11,326,194 from the Partnership's total
capital of $59,095,581 at December 31, 1997. For the year ended December 31,
1998, the Partnership generated net income of
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$5,015,095, total subscriptions aggregated $16,742,471 and total redemptions
aggregated $10,431,372.
For the year ended December 31, 1998, the Partnership's total trading
revenues, including interest income, were $13,096,775. The Partnership's total
expenses for the year were $8,081,680, resulting in net income of $5,015,095.
The value of an individual unit in the Partnership increased from $10.71 at
December 31, 1997 to $11.55 at December 31, 1998.
As of December 31, 1997, the Partnership's total capital was $59,095,581,
an increase of $13,976,704 from the Partnership's total capital of $45,118,877,
at December 31, 1996. For the year ended December 31, 1997, the Partnership
generated a net loss of $1,064,879. Total subscriptions aggregated $22,527,135
and total redemptions aggregated $7,485,552.
For the year ended December 31, 1997, the Partnership's total trading
revenues including interest income were $5,989,330. The Partnership's total
expenses for the year were $7,054,209, resulting in a net loss of $1,064,879.
The value of an individual unit in the Partnership increased from $10.67 at
December 31, 1996 to $10.71 at December 31, 1997.
As of December 31, 1996, the Partnership's total capital was $45,118,877,
an increase of $12,655,945 from the Partnership's total capital of $32,462,932
at December 31, 1995. For the year ended December
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31, 1996, the Partnership incurred a net loss of $806,863, total subscriptions
aggregated $18,630,024 and total redemptions aggregated $5,167,216.
For the year ended December 31, 1996, the Partnership's total trading
revenues including interest income were $4,905,380. The Partnership's total
expenses for the year were $5,712,243, resulting in a net loss of $806,863. The
value of an individual unit in the Partnership decreased from $11.06 at December
31, 1995 to $10.67 at December 31, 1996.
The Partnership's overall performance record represents varied results of
trading in different futures interests markets. For a further description of
1998 trading results, refer to the letter to the Limited Partners in the
accompanying Annual Report to Limited Partners for the year ended December 31,
1998, incorporated by reference in this Form 10-K. The Partnership's gains and
losses are allocated among its partners for income tax purposes.
Credit Risk. In entering into futures and forward contracts there is a
credit risk to the Partnership that the counterparty on the 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
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the event of non-performance by one of its members or one of its member's
customers, and, as such, should significantly reduce this credit risk. For
example, a clearinghouse may cover a default by (i) drawing upon a defaulting
member's mandatory contributions and/or non-defaulting members' contributions to
a clearinghouse guarantee fund, established lines or letters of credit with
banks, and/or the clearinghouse's surplus capital and other available assets of
the exchange and clearinghouse, or (ii) assessing its members.
In cases where the Partnership trades on a foreign exchange where the
clearinghouse is not funded or guaranteed by the membership or where the
exchange is a "principals' market" in which performance is the responsibility of
the exchange member and not the exchange or a clearinghouse, or when the
Partnership enters into off-exchange contracts with a counterparty, the sole
recourse of the Partnership will be the clearinghouse, the exchange member or
the off-exchange contract counterparty, as the case may be. There can be no
assurance that a clearinghouse, exchange or other exchange member will meet its
obligations to the Partnership, and the Partnership is not indemnified against a
default by such parties from Demeter, MSDW or DWR.
Further, the law is unclear as to whether a commodity broker has any
obligation to protect its customers from loss in the event of an exchange,
clearinghouse or other exchange member default on trades
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effected for the broker's customers. Any such obligation on the part of the
broker appears even less clear where the default occurs in a non-US
jurisdiction.
Demeter deals with the credit risks in all partnerships for which it serves
as general partner in several ways. First, it monitors the Partnership's credit
exposure to each exchange on a daily basis, calculating not only the amount of
margin required for it but also the amount of its unrealized gains at each
exchange, if any. The commodity brokers inform the Partnership, as with all
their customers, of its net margin requirements for all its existing open
positions, but do not break that net figure down, exchange by exchange. Demeter,
however, has installed a system which permits it to monitor the Partnership's
potential margin liability, exchange by exchange. Demeter is then able to
monitor the Partnership's potential net credit exposure to each exchange by
adding the unrealized trading gains on that exchange, if any, to the
Partnership's margin liability thereon.
Second, the Partnership's trading policies limit the amount of its net
assets that can be committed at any given time to futures contracts and require,
in addition, a certain minimum amount of diversification in the Partnership's
trading, usually over several different products. One of the aims of such
trading policies has been to reduce the credit exposure of the Partnership to a
single exchange and, historically, the
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Partnership's exposure has typically amounted to only a small percentage of its
total net assets. On those relatively few occasions where the Partnership's
credit exposure may climb above that level, Demeter deals with the situation on
a case by case basis, carefully weighing whether the increased level of credit
exposure remains appropriate.
Third, Demeter has secured, with respect to Carr acting as the clearing
broker for the Partnership, a guarantee by Credit Agricole Indosuez, Carr's
parent, of the payment of the "net liquidating value" of the transactions
(futures and forward contracts) in the Partnership's account.
With respect to forward contract trading, the Partnership trades with only
those counterparties which Demeter, together with DWR, have determined to be
creditworthy. At the date of this filing, the Partnership deals only with Carr
as its counterparty on forward contracts. The guarantee by Carr's parent,
discussed above, covers these forward contracts.
See "Financial Instruments" under Notes to Financial Statements in the
Partnership's Annual Report to Limited Partners for the year ended December 31,
1998, incorporated by reference in this Form 10-K.
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Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the smooth functioning
of computer systems. Many computer systems in use today cannot recognize the
computer code for the year 2000, but revert to 1900 or some other date. This is
commonly known as the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with whom it has a
material relationship do not properly process and calculate date-related
information and data concerning dates on or after January 1, 2000. Such a
failure could adversely affect the handling or determination of futures trades
and prices and other services.
MSDW began its planning for the Year 2000 Problem in 1995, and currently
has several hundred employees working on the matter. It has developed its own
Year 2000 compliance plan to deal with the problem and had the plan approved by
the company's executive management, Board of Directors and Information
Technology Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that affect the
Partnership. This includes hardware and software upgrades, systems consulting
and computer maintenance.
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Beyond the challenge facing internal computer systems, the systems failure
of any of the third parties with whom the Partnership has a material
relationship the futures exchanges and clearing organizations through which it
trades, Carr, or the Trading Advisors - could result in a material financial
risk to the Partnership. All U.S. futures exchanges are subject to monitoring by
the CFTC of their Year 2000 preparedness and the major foreign futures exchanges
are also expected to be subject to market-wide testing of their Year 2000
compliance during 1999. Demeter intends to monitor the progress of Carr and the
Trading Advisors throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the Trading Advisors.
A worst case scenario would be one in which trading of contracts on behalf
of the Partnership becomes impossible as a result of the Year 2000 Problem
encountered by any third parties. A less catastrophic but more likely scenario
would be one in which trading opportunities diminish as a result of technical
problems resulting in illiquidity and fewer opportunities to make profitable
trades. MSDW has begun developing various "contingency plans" in the event that
the systems of such third parties fail. Demeter intends to consult closely with
MSDW in implementing those plans. Despite the best efforts of both Demeter and
MSDW, however, it is possible that these steps will not be sufficient to avoid
any adverse impact to the Partnership.
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Risks Associated With the Euro. On January 1, 1999, eleven countries in the
European Union established fixed conversion rates on their sovereign currencies
and converted to a common single currency (the "euro"). During a three-year
transition period, the existing sovereign currencies will continue to exist but
only as a fixed denomination of the euro. Conversion to the euro prevents the
Trading Advisors from trading in certain currencies and thereby limits their
ability to take advantage of potential market opportunities that might otherwise
have existed had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool engaged primarily in the speculative
trading of futures interests. The market sensitive instruments held by the
Partnership are acquired solely for speculative trading purposes and, as a
result, all or substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of market sensitive
instruments is integral, not incidental, to the Partnership's primary business
activities.
The futures interests traded by the Partnership involve varying degrees of
related market risk. Such market risk is often dependent upon changes in the
level or volatility of interest rates, exchange rates, and/or market values of
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financial instruments and commodities. Fluctuations in related market risk based
upon the aforementioned factors result in frequent changes in the fair value of
the Partnership's open positions, and, consequently, in its earnings and cash
flow.
The Partnership's total market risk is influenced by a wide variety of
factors, including the diversification effects among the Partnership's existing
open positions, the volatility present within the market(s), and the liquidity
of the market(s). At varying times, each of these factors may act to exacerbate
or mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative of its
future results. Any attempt at quantifying the Partnership's market risk must be
qualified by the inherent uncertainty of its speculative trading, which may
cause future losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable expectation premised upon
historical changes in the fair value of its market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership's market
risk exposures contain "forward-looking statements" within the meaning of the
safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
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Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact.
The Partnership accounts for open positions on the basis of mark-to-market
accounting principles. As such, any loss in the fair value of the Partnership's
open positions is directly reflected in the Partnership's earnings, whether
realized or unrealized, and the Partnership's cash flow, as profits and losses
on open positions of exchange-traded futures interests are settled daily through
variation margin.
The Partnership's risk exposure in the various market sectors traded by the
Trading Advisors is estimated below in terms of Value at Risk ("VaR"). The VaR
model employed by the Partnership incorporates numerous variables that could
impact the fair value of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a confidence
level of 99%. Historical simulation involves constructing a distribution of
hypothetical daily changes in trading portfolio value. The VaR model generally
takes into account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and commodity
prices, interest rates, foreign exchange rates, as well as correlation that
exists among these variables. The hypothetical changes in
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portfolio value are based on daily observed percentage changes in key market
indices or other market factors ("market risk factors") to which the portfolio
is sensitive. In the case of the Partnership's VaR, the historical observation
period is approximately four years. The Partnership's one-day 99% VaR
corresponds to the negative change in portfolio value that, based on observed
market risk factor moves, would have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as trading
portfolios become more diverse and modeling techniques and systems capabilities
improve. It must also be noted that the VaR model is used to quantify market
risk for historic reporting purposes only and is not utilized by either Demeter
or the Trading Advisors in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the Partnership's
open positions as a percentage of total net assets by market category as of
December 31, 1998. As of December 31, 1998, the Partnership's total
capitalization was approximately $70 million.
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Primary Market December 31, 1998
Risk Category Value at Risk
-------------- -----------------
Interest Rate (.31)%
Currency (.07)
Equity (.23)
Commodity (.46)
Aggregate Value at Risk (.58)%
Aggregate value at risk represents the aggregate VaR of the Partnership's
open positions and not the sum of the VaR of the individual categories listed
above. Aggregate VaR will be lower as it takes into account correlation among
different positions and categories.
The table above represents the VaR of the Partnership's open positions at
December 31, 1998 only and is not necessarily representative of either the
historic or future risk of an investment in the Partnership. As the
Partnership's sole business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can change
significantly over any given time period or even within a single trading day.
Such changes in open positions could materially impact market risk as measured
by VaR either positively or negatively.
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The table below supplements the year end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total net assets for
the four quarterly reporting periods from January 1, 1998 through December 31,
1998.
Primary Market Risk Category High Low Average
- ---------------------------- ---- --- -------
Interest Rate (3.75)% (0.31)% (2.46)%
Currency (2.11) (0.07) (1.16)
Equity (1.62) (0.20) (0.72)
Commodity (1.52) (0.46) (1.19)
Aggregate Value at Risk (5.04)% (0.58)% (3.21)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is
typically many times the applicable margin requirements, as such margin
requirements generally range between 2% and 15% of contract face value.
Additionally, due to the use of leverage, the face value of the market sector
instruments held by the Partnership is typically many times the total
capitalization of the Partnership. The financial magnitude of the Partnership's
open positions thus creates a "risk of ruin" not typically found in other
investment vehicles. Due to the relative size of the positions held, certain
market conditions, may cause the Partnership to incur losses greatly in excess
of VaR within a short period of time. The foregoing
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VaR tables, as well as the past performance of the Partnership, gives no
indication of such "risk of ruin". In addition, VaR risk measures should be
interpreted in light of the methodology's limitations, which include the
following: past changes in market risk factors will not always yield accurate
predictions of the distributions and correlations of future market movements;
changes in portfolio value in response to market movements may differ from the
responses implicit in a VaR model; published VaR results reflect past trading
positions while future risk depends on future positions; VaR using a one-day
time horizon does not fully capture the market risk of positions that cannot be
liquidated or hedged within one day; and the historical market risk factor data
used for VaR estimation may provide only limited insight into losses that could
be incurred under certain unusual market movements.
The foregoing VaR tables present the results of the Partnership's VaR for
each of the Partnership's market risk exposures and on an aggregate basis at
December 31, 1998 and for the end of quarter periods during calendar 1998. Since
VaR is based on historical data, VaR should not be viewed as predictive of the
Partnership's future financial performance or its ability to manage and monitor
risk and there can be no assurance that the Partnership's actual losses on a
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particular day will not exceed the VaR amounts indicated below or that such
losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances
not needed for margin. However, such balances, as well as any market risk they
may represent, are immaterial. The Partnership also maintains a substantial
portion (approximately 92%) of its available assets in cash at DWR. A decline in
short-term interest rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered material.
Materiality, as used throughout this section, is based on an assessment of
reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage, optionality and multiplier features
of the Partnership's market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market
risk exposures - except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership manages its
primary market risk exposures - constitute
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<PAGE>
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act. The Partnership's primary
market risk exposures as well as the strategies used and to be used by Demeter
and the Trading Advisors for managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially from the
objectives of such strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an influx of new
market participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the
risk management strategies of the Partnership. Investors must be prepared to
lose all or substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the Partnership as
of December 31, 1998, by market sector. It may be anticipated however, that
these market exposures will vary materially over time.
Interest Rate. Interest rate risk is the principal market exposure of the
Partnership. Interest rate movements directly affect the price of the sovereign
bond futures positions held by the
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<PAGE>
Partnership and indirectly the value of its stock index and currency
positions. Interest rate movements in one country as well as relative interest
rate movements between countries materially impact the Partnership's
profitability. The Partnership's primary interest rate exposure is to interest
rate fluctuations in the United States and the other G-7 countries. However, the
Partnership also takes futures positions in the government debt of smaller
nations - e.g. Australia. Demeter anticipates that G-7 interest rates will
remain the primary market exposure of the Partnership for the foreseeable
future. The changes in interest rates which have the most effect on the
Partnership are changes in long-term, as opposed to short-term, rates. Most of
the speculative future positions held by the Partnership are in medium-to-long
term instruments. Consequently, even a material change in short-term rates would
have little effect on the Partnership were the medium-to-long term rates to
remain steady.
Currency. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two currencies other
than the U.S. dollar. However, the Partnership's major exposures have typically
been in the dollar/yen,
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dollar/mark and dollar/pound positions. Demeter does not anticipate that the
risk profile of the Partnership's currency sector will change significantly in
the future, although it is difficult at this point to predict the effect of the
introduction of the Euro on the Trading Advisors' currency trading strategies.
Equity. The Partnership's primary equity exposure is to equity price risk
in the G-7 countries. The stock index futures traded by the Partnership are by
law limited to futures on broadly based indices. As of December 31, 1998, the
Partnership's primary exposures were in the S&P 500, Financial Times (England),
Nikkei (Japan) and DAX (Germany) stock indices. Demeter anticipates little, if
any, trading in non-G-7 stock indices. The Partnership is primarily exposed to
the risk of adverse price trends or static markets in the major U.S., European
and Japanese indices. (Static markets would not cause major market changes but
would make it difficult for the Partnership to avoid being "whipsawed" into
numerous small losses).
Commodity.
Metals. The Partnership's primary metals market exposure is to fluctuations
in the price of gold and silver. Although certain of the Trading Advisors will
from time to time trade base metals such as aluminum, copper, nickel and zinc,
the principal market exposures of the Partnership have consistently been in the
precious metals, gold
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<PAGE>
and silver. The Trading Advisors' gold trading has been increasingly limited due
to the long-lasting and mainly non-volatile decline in the price of gold over
the last 10-15 years. However, silver prices have remained volatile over this
period, and the Trading Advisors have from time to time taken substantial
positions as they have perceived market opportunities to develop. Demeter
anticipates that gold and silver will remain the primary metals market exposure
for the Partnership.
Soft Commodities. One of the Partnership's primary commodities exposure is
to fluctuations in the price of soft commodities, which are often directly
affected by severe or unexpected weather conditions. Soybeans, grains, cocoa and
sugar accounted for the substantial bulk of the Partnership's commodities
exposure as of December 31, 1998. The Partnership has market exposure to live
cattle and lean hogs. However, Demeter anticipates that the Trading Advisors
will maintain an emphasis on soybeans, grains, cocoa and sugar, in which the
Partnership has historically taken it's largest positions.
Energy. The Partnership's primary energy market exposure is to gas and oil
price movements, often resulting from political developments in the Middle East.
Although the Trading Advisors trade natural gas to a limited extent, oil is by
far the dominant energy market exposure of the Partnership. Oil prices are
currently
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<PAGE>
depressed, but they can be volatile and substantial profits and losses have been
and are expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the Partnership at
December 31, 1998:
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, German marks, British pounds, French francs and
euros. The Partnership controls the non-trading risk of these balances by
regularly converting these balances back into U.S. dollars at varying intervals,
depending upon such factors as size, volatility, etc.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisors, severally,
attempt to manage the risk of the Partnership's open positions are essentially
the same in all market categories traded. Demeter attempts to manage the
Partnership's market exposure by (i) diversifying the Partnership's assets among
different Trading Advisors, each of whose strategies focus on different market
sectors and trading approaches, and (ii), monitoring the performance of the
Trading Advisors on a daily basis. In addition, the Trading Advisors
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<PAGE>
establish diversification guidelines, often set in terms of the maximum margin
to be committed to positions in any one market sector or market sensitive
instrument. One should be aware that certain Trading Advisors treat their risk
control policies as strict rules, whereas others treat such policies as general
guidelines.
Demeter monitors and controls the risk of the Partnership's non-trading
instruments, cash, which is the only Partnership investment directed by Demeter,
rather than the Trading Advisors.
Item 8. FINANCIAL STATEMENTS AND SIPPLEMENTAL DATA
The information required by this Item appears in the Annual Report to
Limited Partners for the year ended December 31, 1998 and is incorporated by
reference in this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGuAND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no directors or executive officers of the Partnership. The
Partnership is managed by Demeter.
Directors and Officers of the General Partner
The directors and officers of Demeter are as follows:
Mark J. Hawley, age 55, is Chairman of the Board and a Director of Demeter.
Mr. Hawley is also Chairman of the Board and a Director of DWFCM. Mr. Hawley
previously served as President of Demeter throughout 1998. Mr. Hawley joined DWR
in February 1989 as Senior Vice President and is currently the Executive Vice
President and Director of DWR's Product Management for Individual Asset
Management. In this capacity, Mr. Hawley is responsible for directing the
activities of the firm's Managed Futures, Insurance, and Unit Investment Trust
Business. From 1978 to 1989, Mr. Hawley was a member of the senior management
team at Heinold Asset Management, Inc., a CPO, and was responsible for a variety
of projects in public futures funds. From 1972 to 1978, Mr. Hawley was a Vice
President in charge of institutional block trading for the Mid-West at Kuhn Loeb
& Company.
Joseph G. Siniscalchi, age 53, is a Director of Demeter. Mr. Siniscalchi
joined DWR in July 1984 as a First Vice President, Director of General
Accounting and served as a Senior Vice President and Controller for DWR's
Securities
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<PAGE>
Division through 1997. He is currently Executive Vice President and Director of
the Operations Division of DWR. From February 1980 to July 1984, Mr. Siniscalchi
was Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc.
Edward C. Oelsner, III, age 56, is a Director of Demeter. Mr. Oelsner is
currently an Executive Vice President and head of the Product Development Group
at Dean Witter InterCapital Inc., an affiliate of DWR. Mr. Oelsner joined DWR in
1981 as a Managing Director in DWR's Investment Banking Department specializing
in coverage of regulated industries and, subsequently, served as head of the DWR
Retail Products Group. Prior to joining DWR, Mr. Oelsner held positions at The
First Boston Corporation as a member of the Research and Investment Banking
Departments from 1967 to 1981. Mr. Oelsner received his M.B.A. in Finance from
the Columbia University Graduate School of Business in 1966 and an A.B. in
Politics from Princeton University in 1964.
Robert E. Murray, age 38, is President and a Director of Demeter. Mr.
Murray is also President and a Director of DWFCM. Effective as of the close of
business December 31, 1998, Mr. Murray replaced Mr. Hawley as President of
Demeter. Mr. Murray is also a Senior Vice President of DWR's Managed Futures
Department and is the Senior Administrative Officer of DWFCM. Mr. Murray began
his career at DWR in 1984 and is currently the Director of the Managed Futures
Department. In this capacity, Mr. Murray is responsible for overseeing all
aspects of the firm's Managed Futures Department. Mr. Murray currently serves as
a Director of the Managed Funds Association, an industry association for
investment professionals in futures, hedge funds and other alternative
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<PAGE>
investments. Mr. Murray graduated from Geneseo State University in May 1983 with
a B.A. degree in Finance.
Lewis A. Raibley, III, age 36, is Vice President, Chief Financial Officer
and a Director of Demeter. Effective as of the close of business on December 31,
1998, Mr. Raibley was elected to Demeter's Board of Directors. Mr. Raibley is
currently Senior Vice President and Controller in the Individual Asset
Management Group of MSDW. From July 1997 to May 1998, Mr. Raibley served as
Senior Vice President and Director in the Internal Reporting Department of MSDW
and prior to that, from 1992 to 1997, he served as Senior Vice President and
Director in the Financial Reporting and Policy Division of Dean Witter Discover
& Co. He has been with MSDW and its affiliates since June 1986.
Mitchell M. Merin, age 45, became a Director of Demeter on March 17, 1999.
Mr. Merin was appointed the Chief Operating Officer of Asset Management for MSDW
in December 1998 and the President and Chief Executive Officer of Morgan Stanley
Dean Witter Advisors in February 1998. He has been an Executive Vice President
of DWR since 1990, during which time he has been director of DWR's Taxable Fixed
Income and Futures divisions, managing director in Corporate Finance and
corporate treasurer. Mr. Merin received his Bachelor's degree from Trinity
College in Connecticut and his M.B.A. degree in finance and accounting from the
Kellogg Graduate School of Management of Northwestern University in 1977.
Richard A. Beech, age 47, became a Director of Demeter on March 17, 1999.
Mr. Beech has been associated with the futures industry for over 23 years. He
has been at DWR since August 1984 where he is presently Senior Vice President
and
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<PAGE>
head of Branch Futures. Mr. Beech began his career at the Chicago Mercantile
Exchange, where he became the Chief Agricultural Economist doing market
analysis, marketing and compliance. Prior to joining DWR, Mr. Beech also had
worked at two investment banking firms in Operations, Research, Managed Futures
and Sales Management.
Ray Harris, age 42, became a Director of Demeter on March 17, 1999. Mr.
Harris is currently Senior Vice President, Planning and Administration for
Morgan Stanley Dean Witter Asset Management and has worked at DWR or its
affiliates since July 1982, serving in both financial and administrative
capacities. From August 1994 to January 1999, he worked in two separate DWR
affiliates, Discover Financial Services and Novus Financial Corp., culminating
as Senior Vice President. Mr. Harris received his B.A. degree from Boston
College and his M.B.A. in finance from the University of Chicago.
Richard M. DeMartini, age 46, previously served as the Chairman of the
Board and as a Director of Demeter throughout 1998. Effective as of the close of
business on December 31, 1998, Mr. DeMartini resigned as the Chairman of the
Board and as a Director of Demeter due to changes in his responsibilities within
MSDW.
Lawrence Volpe, age 51, served as a Director to Demeter throughout 1998.
Effective as of the close of business on December 31, 1998, Mr. Volpe resigned
as a Director of Demeter.
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<PAGE>
Patti L. Behnke, age 38, served as Vice President and Chief Financial
Officer of Demeter through May 1998. Effective June 1, 1998, Ms. Behnke resigned
as Vice President and Chief Financial Officer of Demeter in order to take on new
responsibilities as Operations Officer - Controllers Division for MSDW, and was
replaced by Mr. Raibley.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a limited
partnership, the business of the Partnership is managed by Demeter, which is
responsible for the administration of the business affairs of the Partnership
but receives no compensation for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - As of December 31,
1998, there were no persons known to be beneficial owners of more than 5 percent
of the Units.
(b) Security Ownership of Management - At December 31, 1998, Demeter owned
64,937.294 Units of General Partnership Interest represent-ing a 1.07 percent
interest in the Partnership.
(c) Changes in Control - None
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<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to Financial
Statements", in the accompanying Annual Report to Limited Partners for the year
ended December 31, 1998, incorporated by reference in this Form 10-K. In its
capacity as the Partnership's retail commodity broker, DWR received commodity
brokerage commissions (paid and accrued by the Partnership) of $4,402,540 for
the year ended December 31, 1998.
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<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and report of independent auditors,
all appearing in the accompanying Annual Report to Limited Partners
for the year ended December 31, 1998, are incorporated by reference in
this Form 10-K:
- Report of Deloitte & Touche LLP, independent auditors, for the
years ended December 31, 1998, 1997 and 1996.
- Statements of Financial Condition as of December 31, 1998 and
1997.
- Statements of Operations, Changes in Partners' Capital, and Cash
Flows for the years ended December 31, 1998, 1997 and 1996.
- Notes to Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8 and 13, the Annual Report to
Limited Partners for the year ended December 31, 1998 is not deemed to
be filed with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with this
report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Partnership during the last
quarter of the period covered by this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DEAN WITTER SPECTRUM STRATEGIC L.P.
(Registrant)
BY: Demeter Management Corporation,
General Partner
March 25, 1999 BY: /s/ Robert E. Murray
------------------------------------
Robert E. Murray, Director and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Demeter Management Corporation.
BY: /s/ Robert E. Murray March 25, 1999
--------------------------------------
Robert E. Murray, Director and
President
/s/ Mark J. Hawley March 25, 1999
--------------------------------------
Mark J. Hawley, Director
and Chairman of the Board
/s/ Joseph G. Siniscalchi March 25, 1999
--------------------------------------
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 25, 1999
--------------------------------------
Edward C. Oelsner III, Director
/s/ Mitchell M. Merin March 25, 1999
--------------------------------------
Mitchell M. Merin, Director
/s/ Richard A. Beech March 25, 1999
--------------------------------------
Richard A. Beech, Director
/s/ Ray Harris March 25, 1999
--------------------------------------
Ray Harris, Director
/s/ Lewis A. Raibley, III March 25 1999
--------------------------------------
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal
Accounting Officer
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<PAGE>
EXHIBIT INDEX
ITEM
3.01 Form of Amended and Restated Limited Partnership Agreement of the
Partnership, dated as of May 31, 1998, is incorporated by reference to
Exhibit A of the Partnership's Prospectus, dated January 21, 1999, filed
with the Securities and Exchange Commission pursuant to Rule 424(b)(3)
under the Securities Act of 1933, as amended, on January 26, 1999.
3.02 Certificate of Limited Partnership, dated April 18, 1994, is incorporated
by reference to Exhibit 3.02 of the Partnership's Registration Statement
on Form S-1 (File No. 33-80146) filed with the Securities and Exchange
Commission on June 10, 1994.
10.01 Management Agreement, dated as of November 1, 1994, among the
Partnership, Demeter Management Corporation, and Blenheim Investments,
Inc. is filed herewith.
10.02 Management Agreement, dated as of November 1, 1994, among the
Partnership, Demeter Management Corporation, and Willowbridge Associates,
Inc. is filed herewith.
10.03 Amended and Restated Customer Agreement, dated as of December 1, 1997,
between the Partnership and Dean Witter Reynolds Inc. is filed herewith.
10.04 Customer Agreement, dated as of December 1, 1997, among the Partnership,
Carr Futures, Inc., and Dean Witter Reynolds Inc. is filed herewith.
10.05 International Foreign Exchange Master Agreement, dated as of August 1,
1997, between the Partnership and Carr Futures, Inc. is filed herewith.
10.06 Subscription and Exchange Agreement and Power of Attorney to be executed
by each purchaser of Units is incorporated by reference to Exhibit B of
the Partnership's Prospectus dated January 21, 1999, filed with the
Securities and Exchange Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933, as amended, on January 26, 1999.
10.07 Escrow Agreement, dated September 30, 1994, among the Partnership,
Demeter Management Corporation, Dean Witter Reynolds Inc., and Chemical
Bank is filed herewith.
13.01 December 31, 1998 Annual Report to Limited Partners is filed herewith.
E-1
EXHIBIT 10.01
MANAGEMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of November, 1994,
among DEAN WITTER SPECTRUM STRATEGIC L.P., a Delaware limited partnership (the
"Partnership"), DEMETER MANAGEMENT CORPORATION, a Delaware corporation (the
"General Partner"), and BLENHEIM INVESTMENTS, INC., a New Jersey corporation
(the "Trading Manager").
W I T N E S S E T H:
WHEREAS, the Partnership has been organized pursuant to the
Limited Partnership Agreement dated as of May 27, 1994 (the "Limited Partnership
Agreement"), to engage primarily in speculative trading of commodities
(including foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, obligations of or guaranteed by the United
States Government, and any other financial instruments, securities, stock,
financial and economic indexes, and items which are now or may hereafter be the
subject of futures contract trading), futures contracts, forward contracts,
foreign exchange commitments, options on physical commodities and on futures
contracts, spot (cash) commodities and currencies, and any rights pertaining
thereto (hereinafter referred to collectively as "futures interests") and
securities (such as United States Treasury bills) approved by the Commodity
Futures Trading Commission (the "CFTC") for investment of customer funds;
WHEREAS, the Partnership intends to become a member
partnership of the Dean Witter Spectrum Series (the "Fund Group") by entering
into an agreement pursuant to which units of limited partnership interest
("Units") of such member partnerships will be sold to investors in a common
offering under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement on Form S-1 (No. 33-80146) (as amended from
time to time, the "Registration Statement") and a final Prospectus dated
September 15, 1994, constituting a part thereof (as amended and supplemented,
the "Prospectus"), and thereafter, pursuant to which such Units can be exchanged
by a limited partner of a member partnership of the Fund Group at the end of any
month after he has been a limited partner of a member partnership of the Fund
Group for six months for Units of other member partnerships of the Fund Group at
100% of the respective Net Asset Value thereof;
WHEREAS, the Trading Manager has extensive experience trading
in futures interests and is willing to provide certain services and undertake
certain obligations as set forth herein;
WHEREAS, the Partnership desires the Trading Manager to act as
a trading manager for the Partnership and to make investment decisions with
respect to futures interests for its allocated share of the Partnership's Net
Assets and the Trading Manager desires so to act; and
WHEREAS, the Partnership, the General Partner and the Trading
Manager wish to enter into this Management Agreement which, among other things,
sets forth certain terms and conditions upon which the Trading Manager will
conduct a portion of the Partnership's futures interests trading;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Undertaking in Connection with the
Continuing Offering of Units.
----------------------------------
(a) The Trading Manager agrees with respect to the continuing
offering of Units: (i) to make all disclosures regarding itself, its principals
and affiliates, its trading performance, its trading systems, methods, and
strategies (subject to the need, in the reasonable discretion of the Trading
Manager, to preserve the secrecy of proprietary information concerning such
systems, methods, and strategies), any client accounts over which it has
discretionary trading authority (other than the names of any such clients), and
otherwise, as the Partnership may reasonably require (x) to be made in the
Partnership's Prospectus required by Section 4.21 of the regulations of the
CFTC, including any amendments or supplements thereto, or (y) to comply with any
applicable federal or state law or rule or regulation, including those of the
Securities and Exchange Commission (the "SEC"), the CFTC, the National Futures
Association (the "NFA"), the National Association of Securities Dealers, Inc.
(the "NASD"), or any other regulatory body, exchange, or board; and (ii)
otherwise to cooperate with the Partnership and the General Partner by providing
information regarding the Trading Manager in connection with the preparation and
filing of the Registration Statement and Prospectus, including any amendments or
supplements thereto, with the SEC, CFTC, NFA, NASD, and with appropriate
governmental authorities as part of making application for registration of the
Units under the securities or Blue Sky laws of such jurisdictions as the
Partnership may deem appropriate. As used herein, the term "principal" shall
have the meaning as defined in Section 4.10(e) of the CFTC's Regulations and the
term "affiliate" shall mean an individual or entity that directly or indirectly
controls, is controlled by, or is under common control with, the Trading
Manager.
(b) If, while Units continue to be offered and sold, the
Trading Manager becomes aware of any materially untrue or misleading statement
or omission regarding itself or any of its principals or affiliates in the
Registration Statement or Prospectus, or of the occurrence of any event or
change in circumstances which would result in there being any materially untrue
or misleading statement or omission in the Registration Statement or Prospectus
regarding itself or any of its principals or affiliates, such Trading Manager
shall promptly notify the General Partner and shall cooperate with it in the
preparation of any necessary amendments or supplements to the Registration
Statement or Prospectus. Neither the Trading Manager nor any of its principals,
or affiliates, or any stockholders, officers, directors, or employees shall
distribute the Prospectus or selling literature or shall engage in any selling
activities whatsoever in connection with the continuing offering of Units except
as may be specifically requested by the General Partner.
2. Duties of the Trading Manager.
------------------------------
(a) Upon the commencement of trading operations by the
Partnership, the Trading Manager hereby agrees to act as a Trading Manager for
the Partnership and, as such, shall have sole authority and responsibility for
directing the investment and reinvestment of its allocable share of the Net
Assets of the Partnership on the terms and conditions and in accordance with the
prohibitions and trading policies set forth in this Agreement or provided in
writing to the Trading Manager; provided, however, that the General Partner may
override the instructions of the Trading Manager to the extent necessary (i) to
comply with the trading policies of the Partnership described in writing to the
Trading Manager and with applicable speculative position limits, (ii) to fund
any distributions, redemptions, or reapportionments among other trading managers
to the Partnership, (iii) to pay the Partnership's expenses, (iv) to the extent
the General Partner believes doing so is necessary for the protection of the
Partnership, (v) to terminate the futures interests trading of the Partnership,
or (vi) to comply with any applicable law or regulation. The General Partner
agrees not to override any such instructions for the reasons specified in
clauses (ii) or (iii) of the preceding sentence unless the Trading Manager fails
to comply with a request of the General Partner to make the necessary amount of
funds available to the Partnership within five days of such request. The Trading
Manager shall not be liable for the consequences of any decision by the General
Partner to override instructions of the Trading Manager, except to the extent
that the Trading Manager is in breach of this Agreement. In performing services
to the Partnership the Trading Manager may not materially alter the trading
program(s) used by the Trading Manager in investing and reinvesting its
allocable share of the Partnership's Net Assets in futures interests as
described in the Prospectus without the prior written consent of the General
Partner, it being understood that changes in the futures interests traded shall
not be deemed an alteration in the Trading Manager's trading program(s).
(b) The Trading Manager shall:
(i) Exercise good faith and due care in trading
futures interests for the account of the Partnership in accordance with the
prohibitions and trading policies of the Partnership provided in writing to the
Trading Manager and the trading systems, methods and strategies of the Trading
Manager described in the Prospectus, with such changes and additions to such
trading systems, methods or strategies as the Trading Manager, from time to
time, incorporates into its trading approach for accounts the size of the
Partnership.
(ii) Subject to reasonable assurances of
confidentiality by the General Partner and the Partnership, provide the General
Partner, within 30 days of a request therefor by the General Partner, with
information comparing the performance of the Partnership's account and the
performance of all other client accounts directed by the Trading Manager using
the trading systems used by the Trading Manager for the Partnership over a
specified period of time. In providing such information, the Trading Manager may
take such steps as are necessary to assure the confidentiality of the Trading
Manager's clients' identities. The Trading Manager shall, upon the General
Partner's request, consult with the General Partner concerning any discrepancies
between the performance of such other accounts and the Partnership's account.
The Trading Manager shall promptly inform the General partner of any material
discrepancies of which the Trading Manager is aware. The General Partner
acknowledges that different trading strategies or methods may be utilized for
differing sizes of accounts, accounts with different trading policies, accounts
experiencing differing inflows or outflows of equity, accounts which commence
trading at different times, accounts which have different portfolios or
different fiscal years and that such differences may cause divergent trading
results.
(iii) Upon request of the General Partner and subject
to reasonable assurances of confidentiality by the General Partner and the
Partnership, provide the General Partner with all material information
concerning the Trading Manager other than proprietary information (including,
without limitation, information relating to changes in control, personnel,
trading approach, or financial condition). The General Partner acknowledges that
all trading instructions made by the Trading Manager will be held in confidence
by the General Partner, except to the extent necessary to conduct the business
of the Partnership or as required by law.
(iv) Inform the General Partner when the Trading
Manager's open positions maintained by the Trading Manager exceed the Trading
Manager's applicable speculative position limits.
(c) All purchases and sales of futures interests pursuant to
this Agreement shall be for the account, and at the risk, of the Partnership and
not for the account, or at the risk, of the Trading Manager or any of its
stockholders, directors, officers, or employees, or any other person, if any,
who controls the Trading Manager within the meaning of the Securities Act. All
brokerage fees arising from trading by the Trading Manager shall be for the
account of the Partnership. The Trading Manager makes no representations as to
whether its trading will produce profits or avoid losses.
(d) Notwithstanding anything in this Agreement to the
contrary, the Trading Manager shall assume financial responsibility for any
errors committed or caused by it in transmitting orders for the purchase or sale
of futures interests for the Partnership's account, including payment to DWR of
the floor brokerage commissions, exchange and NFA fees, and other transaction
charges and give-up charges incurred by DWR on such trades but only for the
amount of DWR's out-of-pocket costs in respect thereof. The Trading Manager's
errors shall include, but not be limited to, inputting improper trading signals
or communicating incorrect orders to DWR. However, the Trading Manager shall not
be responsible for errors committed or caused by DWR or by floor brokers or
other FCM's. The Trading Manager shall have an affirmative obligation promptly
to notify the General Partner of its own errors, and the Trading Manager shall
use its best efforts to identify and promptly notify the General Partner of any
order or trade which the Trading Manager reasonably believes was not executed in
accordance with its instructions to DWR or such other commodity broker utilized
to execute orders for the Partnership.
(e) Prior to the commencement of trading by the Partnership,
the General Partner on behalf of the Partnership shall deliver to the Trading
Manager a trading authorization appointing the Trading Manager the Partnership's
attorney-in-fact for such purpose.
3. Designation of Additional Trading
Managers and Reallocation of Net Assets.
----------------------------------------
(a) If the General Partner at any time deems it to be in the
best interests of the Partnership, the General Partner may designate an
additional trading manager or managers for the Partnership and may apportion to
such additional trading manager(s) the management of such amounts of Net Assets
(as defined in Section 6(c) hereof) as the General Partner shall determine in
its absolute discretion. The designation of an additional trading manager or
managers and the apportionment of Net Assets to any such trading manager(s)
pursuant to this Section 3 shall neither terminate this Agreement nor modify in
any regard the respective rights and obligations of the Partnership, the General
Partner and the Trading Manager hereunder. In the event that an additional
trading manager or managers are so designated, the Trading Manager shall
thereafter receive management and incentive fees based, respectively, on that
portion of the Net Assets managed by the Trading Manager and the Trading Profits
attributable to the trading by the Trading Manager.
(b) The General Partner may at any time and from time to time
upon two business days' prior notice reallocate Net Assets allocated to the
Trading Manager to any other trading manager or managers of the Partnership or
allocate additional Net Assets upon two business days' prior notice to the
Trading Manager from such other trading manager or managers; provided that any
such addition to or withdrawal from Net Assets allocated to the Trading Manager
of the Net Assets will only take place on the last day of a month unless the
General Partner determines that the best interests of the Partnership require
otherwise.
4. Trading Manager Independent.
----------------------------
For all purposes of this Agreement, the Trading Manager shall
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized, have no authority to act for or represent the
Partnership in any way or otherwise be deemed an agent of the Partnership.
Nothing contained herein shall be deemed to require the Partnership to take any
action contrary to the Limited Partnership Agreement, the Certificate of Limited
Partnership of the Partnership as from time to time in effect (the "Certificate
of Limited Partnership"), or any applicable law or rule or regulation of any
regulatory body, exchange, or board. Nothing herein contained shall constitute
the Trading Manager or any other trading manager or managers for the Partnership
as members of any partnership, joint venture, association, syndicate or other
entity, or be deemed to confer on any of them any express, implied, or apparent
authority to incur any obligation or liability on behalf of any other. It is
expressly agreed that the Trading Manager is neither a promoter, sponsor, or
issuer with respect to the Partnership, nor does the Trading Manager have any
authority or responsibility with respect to the sale or issuance of Units.
5. Commodity Broker.
-----------------
The Trading Manager shall effect all transactions in futures
interests for the Partnership through, and shall maintain a separate account
with, such commodity broker or brokers as the General Partner shall direct. At
the present time, Dean Witter Reynolds Inc. ("DWR") shall act as commodity
broker for the Partnership. The General Partner shall provide the Trading
Manager with copies of brokerage statements. Notwithstanding that DWR shall act
as commodity broker for the Partnership, the Trading Manager may execute trades
through floor brokers other than those employed by DWR so long as arrangements
are made for such floor brokers to "give-up" or transfer the positions to DWR
and provided that the rates charged by such floor brokers have been approved in
writing by DWR. All give-up fees will be paid by DWR and not the Trading
Manager.
6. Fees.
-----
(a) For the services to be rendered to the Partnership by the
Trading Manager under this Agreement, the Partnership shall pay the Trading
Manager the following fees:
(i) A monthly management fee, without regard to the
profitability of the Trading Manager's trading for the Partnership's account,
equal to 1/3 of 1% (a 4% annual rate) of the "Net Assets" of the Partnership
allocated to the Trading Manager (as defined in Section 6(c)) as of the opening
of business on the first day of each calendar month.
(ii) A monthly incentive fee equal to 15% of the
"Trading Profits" (as defined in Section 6(d)) as of the end of each calendar
month, payable on a non-netted basis vis-a-vis other trading managers(s) of the
Partnership. The initial incentive period will commence on the date of the
Partnership's initial closing (the "Initial Closing") and shall end on the last
day of the first month ending after such Initial Closing occurs.
(b) If this Agreement is terminated on a date other than the
last day of a month, the incentive fee described above shall be determined as if
such date were the end of a month. If this Agreement is terminated on a date
other than the end of a month, the management fee described above shall be
determined as if such date were the end of a month, but such fee shall be
prorated based on the ratio of the number of trading days in the month through
the date of termination to the total number of trading days in the month. If,
during any month after the Partnership commences trading operations (including
the month in which the Partnership commences such operations), the Partnership
does not conduct business operations, or suspends trading for the account of the
Partnership managed by the Trading Manager, or, as a result of an act or
material failure to act by the Trading Manager, is otherwise unable to utilize
the trading advice of the Trading Manager on any of the trading days of that
period for any reason, the management fee described above shall be prorated
based on the ratio of the number of trading days in the month which the
Partnership account managed by the Trading Manager engaged in trading operations
or utilizes the trading advice of the Trading Manager to the total number of
trading days in the month. The management fee payable to the Trading Manager for
the month in which the Partnership begins to receive trading advice from the
Trading Manager pursuant to this Agreement shall be prorated based on the ratio
of the number of trading days in the month from the day the Partnership begins
to receive such trading advice to the total number of trading days in the month.
(c) As used herein, the term "Net Assets" shall mean the total
assets of the Partnership (including, but not limited to, all cash and cash
equivalents, accrued interest and amortization of original issue discount, and
the market value of all open futures interest positions and other assets of the
Partnership) less all liabilities of the Partnership (including, but not limited
to, all brokerage fees, incentive and management fees, 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
or option contract traded on a United States exchange shall mean the settlement
price on the exchange on which the particular futures or option contract shall
be traded by the Partnership on the day with respect to which the Net Assets are
being determined; provided, however, that if a contract could not be liquidated
on such day due to the operation of daily limits or other rules of the exchange
on which that contract shall be traded or otherwise, the settlement price on the
first subsequent day on which the contract could be liquidated shall be the
market value of such contract for such day. The market value of a forward
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.
(d) As used herein, the term "Trading Profits" shall mean net
futures interests trading profits (realized and unrealized) earned on the
Partnership's Net Assets allocated to the Trading Manager, decreased by the
Trading Manager's monthly management fees and a pro rata portion of the monthly
brokerage fee relating to the Trading Manager's allocated Net Assets; with such
trading profits and items of decrease determined from the end of the last month
in which an incentive fee was earned by the Trading Manager or, if no incentive
fee has been earned previously by the Trading Manager, from the date that the
Partnership commenced trading to the end of the month as of which such incentive
fee calculation is being made.
(e) If any payment of incentive fees is made to the Trading
Manager on account of Trading Profits earned by the Partnership on Net Assets
allocated to the Trading Manager and the Partnership thereafter fails to earn
Trading Profits or experiences losses for any subsequent incentive period with
respect to such amounts so allocated, the Trading Manager shall be entitled to
retain such amounts of incentive fees previously paid to the Trading Manager in
respect of such Trading Profits. However, no subsequent incentive fees shall be
payable to the Trading Manager until the Partnership has again earned Trading
Profits on the Trading Manager's allocated Net Assets; provided, however, that
if the Trading Manager's allocated Net Assets are reduced or increased because
of redemptions, additions or reallocations which occur at the end of, or
subsequent to, an incentive period in which the Partnership experiences a
futures interests trading loss with respect to Net Assets allocated to the
Trading Manager, the trading loss for that incentive period which must be
recovered before the Trading Manager's allocated Net Assets will be deemed to
experience Trading Profits will be equal to the amount determined by (x)
dividing the Trading Manager's allocated Net Assets after such increase or
decrease by the Trading Manager's allocated Net Assets immediately before such
increase or decrease and (y) multiplying that fraction by the amount of the
unrecovered futures interests trading loss experienced in that month prior to
such increase or decrease. In the event that the Partnership experiences a
futures interests trading loss in more than one month with respect to the
Trading Manager's allocated Net Assets without the payment of an intervening
incentive fee and Net Assets are increased or reduced in more than one such
month because of redemptions, additions or reallocations, then the trading loss
for each such month shall be adjusted in accordance with the formula described
above and such increased or reduced amount of futures interests trading loss
shall be carried forward and used to offset subsequent futures interest trading
profits. The portion of redemptions to be allocated to the Net Assets of the
Partnership managed by each of the trading managers to the Partnership shall be
in the sole discretion of the General Partner.
(f) The Partnership will remit the management and incentive
fees to the Trading Manager as soon as practicable, but in no event later than
30 days in the case of the management fee, or 45 days in the case of the
incentive fee, of the month-end as of which they are due, together with an
itemized statement showing the calculations.
7. Term.
-----
This Agreement shall continue in effect for a period of three
years after the end of the month in which the Partnership commences trading
operations. At least thirty days prior to the expiration of such three-year
period, the Trading Manager may terminate this Agreement at the end of the
three-year period by providing written notice to the Partnership indicating that
the Trading Manager desires to terminate such Agreement at the end of such
three-year period. If the Agreement is not terminated upon the expiration of the
three-year period, then upon the expiration of such three-year period, this
Agreement shall automatically renew for an additional one-year period and shall
continue to renew for additional one-year periods until this Agreement is
otherwise terminated, as provided for herein. At least thirty days prior to the
expiration of any such one-year period, the Trading Manager may terminate this
Agreement at the end of the current one-year period by providing written notice
to the Partnership indicating that the Trading Manager desires to terminate such
Agreement at the end of such one-year period. This Agreement shall terminate if
the Partnership terminates. The Partnership shall have the right to terminate
this Agreement at its discretion (a) at any month end upon 5 days' prior written
notice to the Trading Manager or (b) at any time upon written notice to the
Trading Manager upon the occurrence of any of the following events: (i) if any
person described as a "principal" of the Trading Manager in the Prospectus
ceases for any reason to be an active executive officer of the Trading Manager;
(ii) if the Trading Manager becomes bankrupt or insolvent: (iii) if the Trading
Manager is unable to use its trading systems or methods as in effect on the date
hereof and as refined and modified in the future for the benefit of the
Partnership; (iv) if the registration, as a commodity trading advisor, of the
Trading Manager with the CFTC or its membership in the NFA is revoked,
suspended, terminated, or not renewed, or limited or qualified in any respect;
(v) except as provided in Section 12 hereof, if the Trading Manager merges or
consolidates with, or sells or otherwise transfers its advisory business, or all
or a substantial portion of its assets, any portion of its futures interests
trading systems or methods, or its goodwill to, any individual or entity; (vi)
if the Trading Manager's initially allocated Net Assets, after adjusting for
distributions, additions, redemptions, or reallocations, if any, shall decline
by 50% or more as a result of trading losses or if Net Assets allocated to the
Trading Manager fall below $1,000,000.00 at any time; (vii) if, at any time, the
Trading Manager violates any trading or administrative policy described in
writing to the Trading Manager by the General Partner, except with the prior
express written consent of the General Partner; or (viii) if the Trading Manager
fails in a material manner to perform any of its obligations under this
Agreement. The Trading Manager may terminate this Agreement at any time, upon
written notice to the Partnership, in the event: (i) that the General Partner
imposes additional trading limitation(s) in the form of one or more trading
policies or administrative policies which the Trading Manager does not agree to
follow in its management of its allocable share of the Partnership's Net Assets;
(ii) the General Partner objects to the Trading Manager implementing a proposed
material change in the Trading Manager's trading program(s) used by the
Partnership and the Trading Manager certifies to the General Partner in writing
that it believes such change is in the best interests of the Partnership; (iii)
the General Partner overrides a trading instruction of the Trading Manager for
reasons unrelated to a determination by the General Partner that the Trading
Manager has violated the Partnership's trading policies and the Trading Manager
certifies to the General Partner in writing that as a result, the Trading
Manager believes the performance results of the Trading Manager relating to
Partnership will be materially adversely affected; (iv) the Partnership
materially breaches this Agreement and does not correct the breach within 10
days of receipt of a written notice of such breach from the Trading Manager; (v)
the Trading Manager has amended its trading program to include a foreign futures
or option contract which may lawfully be traded by the Partnership under CFTC
regulations and counsel, mutually acceptable to the parties, has not opined that
such inclusion would cause adverse tax consequences to Limited Partners and the
General Partner does not consent to the Trading Manager's trading such contract
for the Partnership within 5 business days of a written request by the Trading
Manager to do so, and, if such consent is given, does not make arrangements to
facilitate such trading within 30 days of such notice; or (vi) the assets
allocated to the Trading Manager fall below $1,000,000 at any time.
The indemnities set forth in Section 8 hereof shall survive
any termination of this Agreement.
8. Standard of Liability; Indemnifications.
----------------------------------------
(a) Limitation of Trading Manager Liability. In respect of the
Trading Manager's role in the futures interests trading of the Partnership's
assets, none of the Trading Manager, or its controlling persons, its affiliates,
and their respective directors, officers, shareholders, employees or controlling
persons shall be liable to the Partnership or the General Partner or their
partners, officers, shareholders, directors or controlling persons except that
the Trading Manager shall be liable for acts or omissions of any such person
provided that such act or omission constitutes a breach of this Agreement or a
representation, warranty or covenant herein, misconduct or negligence or is the
result of any such person not having acted in good faith and in the reasonable
belief that such actions or omissions were in, or not opposed to, the best
interests of the Partnership.
(b) Trading Manager Indemnity in Respect of Management
Activities. The Trading Manager shall indemnify, defend and hold harmless the
Partnership and the General Partner, their controlling persons, their affiliates
and their respective directors, officers, shareholders, employees, and
controlling persons from and against any and all losses, claims, damages,
liabilities (joint and several), costs, and expenses (including any reasonable
investigatory, legal, and other expenses incurred in connection with, and any
amounts paid in, any settlement; provided that the Trading Manager shall have
approved such settlement) incurred as a result of any action or omission
involving the Partnership's futures interests trading of the Trading Manager, or
any of its controlling persons or affiliates or their respective directors,
officers, partners, shareholders, or employees; provided that such liability
arises from an act or omission of the Trading Manager, or any of its controlling
persons or affiliates or their respective directors, officers, partners,
shareholders, or employees which is found by a court of competent jurisdiction
upon entry of a final judgment (or, if no final judgment is entered, by an
opinion rendered by counsel who is approved by the Partnership and the Trading
Manager, such approval not to be unreasonably withheld) to be breach of this
Agreement or a representation, warranty or covenant herein, the result of bad
faith, misconduct or negligence, or conduct not done in good faith in the
reasonable belief that it was in, or not opposed to, the best interests of the
Partnership.
(c) Partnership and General Partner Indemnity in Respect of
Management Activities. The Partnership and the General Partner shall, jointly
and severally, indemnify, defend, and hold harmless the Trading Manager, its
controlling persons, their affiliates and their respective directors, officers,
shareholders, employees, and controlling persons, from and against any and all
losses, claims, damages, liabilities (joint and several), costs, and expenses
(including any reasonable investigatory, legal, and other expenses incurred in
connection with, and any amounts paid in, any settlement; provided that the
Partnership shall have approved such settlement) resulting from a demand, claim,
lawsuit, action, or proceeding (other than those incurred as a result of claims
brought by or in the right of an indemnified party) relating to the futures
interests trading activities of the Partnership undertaken by the Trading
Manager; provided that a court of competent jurisdiction upon entry of a final
judgement finds (or, if no final judgement is entered, an opinion is rendered to
the Partnership by independent counsel reasonably acceptable to both parties) to
the effect that the action or inaction of such indemnified party that was the
subject of the demand, claim, lawsuit, action, or proceeding did not constitute
negligence, misconduct, or a breach of this Agreement or a representation,
warranty or covenant of the Trading Manager herein and was done in good faith
and in a manner such indemnified party reasonably believed to be in, or not
opposed to, the best interests of the Partnership.
(d) Trading Manager Indemnity in Respect of Sale of Units. The
Trading Manager shall indemnify, defend and hold harmless DWR, the Partnership,
the General Partner, any Additional Seller, and their affiliates and each of
their officers, directors, principals, shareholders and controlling persons from
and against any loss, claim, damage, liability, cost, and expense, joint and
several, to which any indemnified person may become subject under the Securities
Act, the Securities and Exchange Act of 1934, the Commodity Exchange Act, the
securities or Blue Sky law of any jurisdiction, or otherwise (including any
reasonable investigatory, legal, and other expenses incurred in connection with,
and any amounts paid in, any settlement, provided that the Trading Manager shall
have approved such settlement, and in connection with any administrative
proceedings), in respect of the offer or sale of Units, insofar as such loss,
claim, damage, liability, cost, or expense (or action in respect thereof) arises
out of, or is based upon: (i) a breach by the Trading Manager of any
representation, warranty, or agreement in this Agreement or any certificate
delivered pursuant to this Agreement or the failure by the Trading Manager to
perform any covenant made by the Trading Manager herein; (ii) the factual
accuracy of the information relating to the Trading Manager in the customer
brochure attached hereto as Exhibit A (the "Customer Brochure"); or (iii) a
misleading or untrue statement or alleged misleading or untrue statement of a
material fact made in the Registration Statement, the Prospectus or an omission
or alleged omission to state a material fact therein which is required to be
stated therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading, and such statement or omission relates specifically to the Trading
Manager, or its Trading Manager Principals (including the historical performance
tables but excluding the pro forma performance tables and the notes thereto
unless such statement or omission was based on information furnished by the
Trading Manager in connection with the General Partner's preparation of such pro
forma tables), or was made in reliance upon, and in conformity with, written
information or instructions furnished by the Trading Manager, and in the case of
the Customer Brochure only, was approved in writing by the Trading Manager.
(e) Partnership and General Partner Indemnity in Respect of
Sale of Units. The Partnership and the General Partner agree to indemnify,
defend and hold harmless the Trading Manager and each of its officers,
directors, principals, shareholders and controlling persons from and against any
loss, claim, damage, liability, cost, and expense, joint and several, to which
any indemnified person may become subject under the Securities Act, the
Securities and Exchange Act of 1934, the Commodity Exchange Act, the securities
or Blue Sky law of any jurisdiction, or otherwise (including any reasonable
investigatory, legal, and other expenses incurred in connection with, and any
amounts paid in, any settlement, provided that the Partnership shall have
approved such settlement, and in connection with any administrative
proceedings), in respect of the offer or sale of Units, insofar as such loss,
claim, damage, liability, cost, or expense (or action in respect thereof) arises
out of, or is based upon: (i) a breach by the Trading Manager of any
representation, warranty, or agreement in this Agreement or the failure by the
Trading Manager to perform any covenant made by it herein; or (ii) a misleading
or untrue statement or alleged misleading or untrue statement of a material fact
made in the Registration Statement, the Prospectus or an omission or alleged
omission to state a material fact therein which is required to be stated therein
or necessary to make the statements therein (in the case of the Prospectus in
light of the circumstances under which they were made) not misleading, provided
that such misleading or untrue statement or alleged misleading or untrue
statement or omission or alleged omission relate to the Trading Manager or its
Trading Manager Principals (including the historical performance tables but
excluding the pro forma performance information unless such statement or
omission was based on information furnished by the Trading Manager in connection
with the preparation of such pro forma performance information) or was not made
in reliance upon, and in conformity with, information or instructions furnished
by the Trading Manager.
(f) The foregoing agreements of indemnity shall be in addition
to, and shall in no respect limit or restrict, any other remedies which may be
available to an indemnified person.
(g) Promptly after receipt by an indemnified person of notice
of the commencement of any action, claim, or proceeding to which any of the
indemnities may apply, the indemnified person will notify the indemnifying party
in writing of the commencement thereof if a claim in respect thereof is to be
made against the indemnifying party hereunder; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which the indemnifying party may have to the indemnified person hereunder,
except where such omission has materially prejudiced the indemnifying party. In
case any action, claim, or proceeding is brought against an indemnified person
and the indemnified person notifies the indemnifying party of the commencement
thereof as provided above, the indemnifying party will be entitled to
participate therein and, to the extent that the indemnifying party desires, to
assume the defense thereof with counsel selected by the indemnifying party and
not unreasonably disapproved by the indemnified person. After notice from the
indemnifying party to the indemnified person of the indemnifying party's
election so to assume the defense thereof as provided above, the indemnifying
party will not be liable to the indemnified person under the indemnity
provisions hereof for any legal and other expenses subsequently incurred by the
indemnified person in connection with the defense thereof, other than reasonable
costs of investigation.
Notwithstanding the proceeding paragraph, if, in any action,
claim, or proceeding as to which indemnification is or may be available
hereunder, an indemnified person reasonably determines that its interests are or
may be adverse, in whole or in part, to the indemnifying party's interests or
that there may be legal defenses available to the indemnified person which are
different from, in addition to, or inconsistent with the defenses available to
the indemnifying party, the indemnified person may retain its own counsel in
connection with such action, claim, or proceeding and will be indemnified by the
indemnifying party for any legal and other expenses reasonably incurred in
connection with investigating or defending such action, claim, or proceeding.
In no event will the indemnifying party be liable for the fees
and expenses of more than one counsel for all indemnified persons in connection
with any one action, claim, or proceeding or in connection with separate but
similar or related actions, claims, or proceedings in the same jurisdiction
arising out of the same general allegations. The indemnifying party will not be
liable for any settlement of any action, claim, or proceeding effected without
the indemnifying party's express written consent, but if any action, claim, or
proceeding is settled with the indemnifying party's express written consent, the
indemnifying party will indemnify, defend, and hold harmless an indemnified
person as provided in this Section 8.
9. Right to Advise Others and Uniformity of
Acts and Practices.
----------------------------------------
(a) The Trading Manager is engaged in the business of advising
investors as to the purchase and sale of futures interests. During the term of
this Agreement, the Trading Manager, its principals and affiliates, will be
advising other investors (including affiliates and the stockholders, officers,
directors, and employees of the Trading Manager and its affiliates and their
families) and trading for their own accounts. However, under no circumstances
shall the Trading Manager by any act or omission favor any account advised or
managed by the Trading Manager over the account of the Partnership in any way or
manner (other than by charging different management and/or incentive fees). The
Trading Manager agrees to treat the Partnership in a fiduciary capacity to the
extent recognized by applicable law, but, subject to that standard, the Trading
Manager or any of its principals or affiliates shall be free to advise and
manage accounts for other investors and shall be free to trade on the basis of
the same trading systems, methods, or strategies employed by the Trading Manager
for the account of the Partnership, or trading systems, methods, or strategies
which are entirely independent of, or materially different from, those employed
for the account of the Partnership, and shall be free to compete for the same
futures interests as the Partnership or to take positions opposite to the
Partnership, where such actions do not knowingly or deliberately prefer any of
such accounts over the account of the Partnership.
(b) The Trading Manager shall not be restricted as to the
number or nature of its clients, except that: (i) so long as the Trading Manager
acts as a trading manager for the Partnership, neither the Trading Manager nor
any of its principals or affiliates shall hold knowingly any position or control
any other account which would cause the Partnership, the Trading Manager, or the
principals or affiliates of the Trading Manager to be in violation of the
Commodity Exchange Act or any regulations promulgated thereunder, any applicable
rule or regulation of the CFTC or any other regulatory body, exchange, or board;
and (ii) neither the Trading Manager nor any of its principals or affiliates
shall render futures interests trading advice to any other individual or entity
or otherwise engage in activity which shall knowingly cause positions in futures
interests to be attributed to the Trading Manager under the rules or regulations
of the CFTC or any other regulatory body, exchange, or board so as to require
the significant modification of positions taken or intended for the account of
the Partnership; provided that the Trading Manager may modify its trading
systems, methods or strategies to accommodate the trading of additional funds or
accounts. If applicable speculative position limits are exceeded by the Trading
Manager in the opinion of (i) independent counsel (who shall be other than
counsel to the Partnership), (ii) the CFTC, or (iii) any other regulatory body,
exchange, or board, the Trading Manager and its principals and affiliates shall
promptly liquidate positions in all of their accounts, including the
Partnership's account, as to which positions are attributed to the Trading
Manager as nearly as possible in proportion to the account's respective amounts
available for trading (taking into account different degrees of leverage and
"notional" equity) to the extent necessary to comply with the applicable
position limits.
10. Representations, Warranties, and
Covenants of the Trading Manager.
--------------------------------
(a) Representations of the Trading Manager. The Trading
Manager with respect to itself and each of its principals represents and
warrants to and agrees with the General Partner and the Partnership as follows:
(i) It will exercise good faith and due care in using
the trading programs on behalf of the Partnership that are described in the
Prospectus (as modified from time to time) or any other trading programs agreed
to by the General Partner.
(ii) The Trading Manager shall follow, at all times,
the Trading Policies of the Partnership (as described in the Prospectus) and as
amended in writing and furnished to the Trading Manager from time to time,
provided, that the General Partner has notified the Trading Manager of these
Trading Policies.
(iii) The Trading Manager shall trade: (A) the
Partnership's Net Assets pursuant to the same trading programs described in the
Prospectus unless the General Partner agrees otherwise and (B) only in futures
and option contracts traded on U.S. contract markets, foreign currency forward
contracts traded with DWR, and such commodity interests which are approved in
writing by the General Partner.
(iv) The Trading Manager is duly organized, validly
existing and in good standing as a corporation under the laws of the state of
its incorporation and is qualified to do business as a foreign corporation and
in good standing in each other jurisdiction in which the nature or conduct of
its business requires such qualification and the failure to so qualify would
materially adversely affect the Trading Manager's ability to perform its duties
under this Agreement. The Trading Manager has full corporate power and authority
to perform its obligations under this Agreement, and as described in the
Registration Statement and Prospectus. The only principals (as defined in Rule
4.10(e) under the Commodity Exchange Act) of the Trading Manager are those set
forth in the Prospectus (the "Trading Manager Principals").
(v) All references to the Trading Manager and each
Trading Manager Principal, including the Trading Manager's trading approaches,
systems, and performance, in the Registration Statement and the Prospectus, are
accurate and complete in all material respects. With respect to the material
relating to the Trading Manager and each Trading Manager Principal, including
the Trading Manager's and the Trading Manager Principals' trading approaches,
systems, and performance information, as applicable, (i) the Registration
Statement and Prospectus contain all statements and information required to be
included therein under the Commodity Exchange Act, (ii) the Registration
Statement as of its effective date will not contain any misleading or untrue
statement of a material fact or omit to state a material fact which is required
to be stated therein or necessary to make the statements therein not misleading
and (iii) the Prospectus at its date of issue and as of each closing will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading; provided, however, that the
Trading Manager makes no representation concerning the pro forma performance
information unless such statement or omission was based on information furnished
by the Trading Manager in connection with the preparation of such pro form
information.
(vi) This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Trading Manager and is a
valid and binding agreement of the Trading Manager enforceable in accordance
with its terms.
(vii) Each of the Trading Manager and each
"principal" of the Trading Manager, as defined in Rule 3.1 under the Commodity
Exchange Act, has all federal and state governmental, regulatory and exchange
licenses and approvals and has effected all filings and registrations with
federal and state governmental and regulatory agencies required to conduct its
or his business and to act as described in the Registration Statement and
Prospectus or required to perform its or his obligations under this Agreement.
The Trading Manager is registered as a commodity trading advisor under the
Commodity Exchange Act and is a member of the NFA in such capacity.
(viii) The execution and delivery of this Agreement,
the incurrence of the obligations set forth herein, the consummation of the
transactions contemplated herein and in the Prospectus and the payment of the
fees hereunder will not violate, or constitute a breach of, or default under,
the certificate of incorporation or bylaws of the Trading Manager or any
agreement or instrument by which it is bound or of any order, rule, law or
regulation binding on it of any court or any governmental body or administrative
agency or panel or self-regulatory organization having jurisdiction over it.
(ix) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
may otherwise be stated in or contemplated by the Registration Statement and the
Prospectus, there has not been any material adverse change in the condition,
financial or otherwise, business or prospects of the Trading Manager or any
Trading Manager Principal.
(x) Except as set forth in the Registration Statement
or Prospectus there has not been in the five years preceding the date of the
Prospectus and there is not pending, or to the best of the Trading Manager's
knowledge threatened, any action, suit or proceeding before or by any court or
other governmental body to which the Trading Manager or any Trading Manager
Principal is or was a party, or to which any of the assets of the Trading
Manager is or was subject and which resulted in or might reasonably be expected
to result in any material adverse change in the condition, financial or
otherwise, business or prospects of the Trading Manager or which would be
material to an investor's decision to invest in the Partnership. None of the
Trading Manager or any Trading Manager Principal has received any notice of an
investigation by the NFA or the CFTC regarding noncompliance by the Trading
Manager or any of the Trading Manager Principals with the Commodity Exchange
Act.
(xi) Neither the Trading Manager nor any Trading
Manager Principal has received, or is entitled to receive, directly or
indirectly, any commission, finder's fee, similar fee, or rebate from any person
in connection with the organization or operation of the Partnership, other than
as described in the Prospectus.
(xii) The actual performance of each discretionary
account of a client directed by the Trading Manager and the Trading Manager
Principals since at least the later of (i) the date of commencement of trading
for each such account or (ii) a date five years prior to the effective date of
the Registration Statement, is disclosed in the Prospectus (other than such
discretionary accounts the performance of which are exempt from Commodity
Exchange Act disclosure requirements); all of the information regarding the
actual performance of the accounts of the Trading Manager and the Trading
Manager Principals set forth in the Prospectus is complete and accurate in all
material respects and is in accordance with and in compliance with the
disclosure requirements under the Commodity Exchange Act and the Securities Act,
including the Division of Trading and Markets "notional equity" advisories and
interpretations and the rules and regulations of the NFA.
(xiii) The information relating to the Trading
Manager in the Customer Brochure is factually accurate.
(b) Covenants of the Trading Manager. The Trading Manager
covenants and agrees that:
(i) The Trading Manager shall use its best efforts to
maintain all registrations and memberships necessary for the Trading Manager to
continue to act as described herein and to at all times comply in all material
respects with all applicable laws, rules, and regulations, to the extent that
the failure to so comply would have a materially adverse effect on the Trading
Manager's ability to act as described herein.
(ii) The Trading Manager shall inform the General
Partner immediately as soon as the Trading Manager or any of its principals
becomes the subject of any investigation, claim or proceeding of any regulatory
authority having jurisdiction over such person or becomes a named party to any
litigation materially affecting the business of the Trading Manager. The Trading
Manager shall also inform the General Partner immediately if the Trading Manager
or any of its officers becomes aware of any breach of this Agreement by the
Trading Manager.
(iii) The Trading Manager agrees reasonably to
cooperate by providing information regarding itself and its performance in the
preparation of any amendments or supplements to the Registration Statement and
the Prospectus.
11. Representations and Warranties of the
General Partner and the Partnership.
-------------------------------------
The General Partner and the Partnership represent and warrant
to the Trading Manager, as follows:
(i) The Partnership has provided to the Trading
Manager, and filed with the Securities and Exchange Commission (the "SEC"), the
Registration Statement and has filed copies thereof with: (i) the CFTC under the
Commodity Exchange Act and the rules and regulations promulgated thereunder
(collectively, the "Commodity Act"); (ii) the NASD pursuant to its Rules of Fair
Practice; and (iii) the NFA in accordance with NFA Compliance Rule 2-13. The
Partnership will not file any amendment to the Registration Statement or any
amendment or supplement to the Prospectus unless the Trading Manager has
received reasonable prior notice of and a copy of such amendments or supplements
and has not reasonably objected thereto in writing.
(ii) The Limited Partnership Agreement provides for
the subscription for and sale of the Units; all action required to be taken by
the General Partner and the Partnership as a condition to the sale of the Units
to qualified subscribers therefor has been, or prior to each Closing as defined
in the Prospectus have been taken; and, upon payment of the consideration
therefor specified in each accepted Subscription Agreement and Power of Attorney
or Exchange Agreement and Power of Attorney, as applicable, in such forms are
attached to the Prospectus (except as otherwise specified herein, the term
"Subscription Agreement and Power of Attorney" shall also mean the Exchange
Agreement and Power of Attorney in case of subscribers executing same), the
Units will constitute valid limited partnership interests in the Partnership.
(iii) The Partnership is a limited partnership duly
organized pursuant to the Certificate of Limited Partnership, the Limited
Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act
("DRULPA") and is validly existing under the laws of the State of Delaware with
full power and authority to engage in the trading of futures interests and to
engage in its other contemplated activities as described in the Prospectus; the
Partnership has received a certificate of authority to do business in the State
of New York as provided by Article 8-A of the New York Revised Limited
Partnership Act and is qualified to do business in each jurisdiction in which
the nature or conduct of its business requires such qualification and where
failure to be so qualified could materially adversely affect the Partnership's
ability to perform its obligations hereunder.
(iv) The General Partner is duly organized and
validly existing and in good standing as a corporation under the laws of the
State of Delaware and in good standing and qualified to do business as a foreign
corporation under the laws of the State of New York and is qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature or conduct of its business requires such qualification and
where the failure to be so qualified could materially adversely affect the
General Partner's ability to perform its obligations hereunder.
(v) The Partnership and the General Partner have full
partnership or corporate power and authority under applicable law to conduct
their business and to perform their respective obligations under this Agreement.
(vi) The Registration Statement and Prospectus
contain all statements and information required to be included therein by the
Commodity Act. When the Registration Statement becomes effective under the 1933
Act and at all times subsequent thereto up to and including each Closing, the
Registration Statement and Prospectus will comply in all material respects with
the requirements of the 1933 Act, the SEC Regulations, the rules of the NFA and
the Commodity Act. The Registration Statement as of its effective date will not
contain any misleading or untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus as of its date of issue and at each
Closing will not contain any misleading or untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading. The supplemental sales literature, when read in conjunction with the
Prospectus, will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading. The
supplemental sales literature will comply with the Commodity Act and the
regulations and rules of the NFA and NASD. This representation and warranty
shall not, however, apply to any statement or omission in the Registration
Statement, Prospectus or supplemental sales literature made in reliance upon and
in conformity with information furnished by and relating to the Trading Manager,
its trading methods or its trading performance.
(vii) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been any material adverse change in the condition, financial or otherwise,
business or prospects of the General Partner or the Partnership, whether or not
arising in the ordinary course of business.
(viii) This Agreement has been duly and validly
authorized, executed and delivered by the General Partner on behalf of the
Partnership and the General Partner and constitutes a valid, binding and
enforceable agreement of the Partnership and the General Partner in accordance
with its terms.
(ix) The execution and delivery of this Agreement,
the incurrence of the obligations set forth therein and the consummation of the
transactions contemplated therein and in the Registration Statement and
Prospectus will not violate, or constitute a breach of, or default under, the
General Partner's certificate of incorporation, bylaws, the Certificate of
Limited Partnership, or the Limited Partnership Agreement or any agreement or
instrument by which either the General Partner or the Partnership, as the case
may be, is bound or any order, rule, law or regulation applicable to the General
Partner or the Partnership of any court or any governmental body or
administrative agency or panel or self-regulatory organization having
jurisdiction over the General Partner or the Partnership.
(x) Except as set forth in the Registration Statement
or Prospectus, there has not been in the five years preceding the date of the
Prospectus and there is not pending or, to the best of the General Partner's
knowledge, threatened, any action, suit or proceeding at law or in equity before
or by any court or by any federal, state, municipal or other governmental body
or any administrative, self-regulatory or commodity exchange organization to
which the General Partner or the Partnership is or was a party, or to which any
of the assets of the General Partner or the Partnership is or was subject; and
neither the General Partner nor any of the principals of the General Partner, as
"principals" is defined under Rule 4.10 under the Commodity Act ("General
Partner Principals") has received any notice of an investigation by the NFA,
NASD, SEC or CFTC regarding non-compliance by the General Partner or the General
Partner Principals or the Partnership with the Commodity Act or the 1933 Act
which is material to an investor's decision to invest in the Partnership.
(xi) The General Partner and each principal of the
General Partner, as defined in Rule 3.1 under the Commodity Act, have all
federal and state governmental, regulatory and exchange approvals and licenses,
and have effected all filings and registrations with federal and state and
foreign governmental agencies required to conduct their business and to act as
described in the Registration Statement and Prospectus or required to perform
their obligations under this Agreement (including, without limitation,
registration as a commodity pool operator under the Commodity Act and membership
in the NFA as a commodity pool operator) and will maintain all such required
approvals, licenses, filings and registrations for the term of this Agreement.
The General Partner's principals identified in the Registration Statement are
all of the General Partner Principals.
(b) Covenants of the General Partner. The General Partner
covenants and agrees that:
(i) The General Partner shall use its best efforts to
maintain all registrations and memberships necessary for the General Partner to
continue to act as described herein and in the Prospectus and to all times
comply in all material respects with all applicable laws, rules, and
regulations, to the extent that the failure to so comply would have a materially
adverse effect on the General Partner's ability to act as described herein and
in the Prospectus.
(ii) The General Partner shall inform the Trading
Manager immediately as soon as the General Partner or any of its principals
becomes the subject of any investigation, claim, or proceeding of any regulatory
authority having jurisdiction over such person or becomes a named party to any
litigation materially affecting the business of the General Partner. The General
Partner shall also inform the Trading Manager immediately if the General Partner
or any of its officers become aware of any breach of this Agreement by the
General Partner.
(iii) The Partnership will furnish to the Trading
Manager copies of the Registration Statement, the Prospectus, and all amendments
and supplements thereto, in each case as soon as available.
12. Merger or Transfer of Assets of Trading
Manager.
---------------------------------------
The Trading Manager may merge or consolidate with, or sell or
otherwise transfer its advisory business, or all or a substantial portion of its
assets, any portion of its commodity trading systems or methods, or its
goodwill, to any entity that is directly or indirectly controlled by,
controlling, or under common control with, the Trading Manager, provided that
such entity expressly assumes all obligations of the Trading Manager under this
Agreement and agrees to continue to operate the business of the Trading Manager,
substantially as such business is being conducted on the date hereof.
13. Complete Agreement.
-------------------
This Agreement constitutes the entire agreement between the
parties with respect to the matters referred to herein, and no other agreement,
verbal or otherwise, shall be binding as between the parties unless in writing
and signed by the party against whom enforcement is sought.
14. Assignment.
-----------
This Agreement may not be assigned by any party hereto without
the express written consent of the other parties hereto.
15. Amendment.
----------
This Agreement may not be amended except by the written
consent of the parties hereto.
16. Severability.
-------------
The invalidity or unenforceability of any provision of this
Agreement or any covenant herein contained shall not affect the validity or
enforceability of any other provision or covenant hereof or herein contained and
any such invalid provision or covenant shall be deemed to be severable.
17. Closing Certificates and Opinions.
----------------------------------
(1) The Trading Manager shall, at the Partnership's Initial
Closing and at the request of the General Partner at any Monthly Closing (as
defined in the Prospectus), provide the following:
(a) To DWR, the General Partner and the Partnership a
certificate, dated the date of any such closing and in form and substance
satisfactory to such parties, to the effect that:
(i) The representations and warranties by the Trading
Manager in this Agreement are true, accurate, and complete on and as of the date
of the closing, as if made on the date of the closing.
(ii) The Trading Manager has performed all of its
obligations and satisfied all of the conditions on its part to be performed or
satisfied under this Agreement, at or prior to the date of such closing.
(b) To DWR, the General Partner and the Partnership an
opinion of counsel to the Trading Manager, in form and substance satisfactory to
such parties, to the effect that:
(i) The Trading Manager is a corporation duly
organized and validly existing under the laws of the state of its incorporation
and is qualified to do business and in good standing in each other jurisdiction
in which the nature or conduct of its business requires such qualification and
the failure to be duly qualified would materially adversely affect the Trading
Manager's ability to perform its obligations under this Agreement. The Trading
Manager has full corporate power and authority to conduct its business as
described in the Registration Statement and Prospectus and to perform its
obligations under this Agreement.
(ii) The Trading Manager (including the Trading
Manager Principals) has all governmental, regulatory, self-regulatory and
commodity exchange and clearing association licenses and memberships required by
law, and the Trading Manager (including the Trading Manager Principals) has
received or made all filings and registrations necessary to perform its
obligations under this Agreement and to conduct its business as described in the
Registration Statement and Prospectus, except for such licenses, memberships,
filings and registrations, the absence of which would not have a material
adverse effect on its ability to act as described in the Registration Statement
and Prospectus or to perform its obligations under such agreements, and, to the
best of such counsel's knowledge, after due investigations, none of such
licenses, memberships or registrations have been rescinded, revoked or
suspended.
(iii) This Agreement has been duly authorized,
executed and delivered by or on behalf of the Trading Manager and constitutes a
valid and binding agreement of the Trading Manager enforceable in accordance
with its terms, subject only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the enforceability
generally of rights of creditors and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law), and except as enforceability of the indemnification, exculpation, and
contribution provisions contained in such agreements may be limited by
applicable law or public policy and the enforcement of specific terms or
remedies may be unavailable.
(iv) Based upon due inquiry of certain officers of
the Trading Manager, to the best of such counsel's knowledge, except as
disclosed in the Prospectus, there are no material actions, claims or
proceedings known to such counsel either threatened or pending in any court or
before or by any governmental or administrative body nor have there been any
such actions, claims or proceedings at any time within the five years preceding
the date of the Prospectus against the Trading Manager or any Trading Manager
Principal which are required to be disclosed in the Registration Statement or
Prospectus.
(v) The execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the consummation of the
transactions contemplated herein and in the Prospectus will not be in
contravention of any of the provisions of the certificate of incorporation or
bylaws of the Trading Manager and, based upon due inquiry of certain officers of
the Trading Manager, to the best of such counsel's knowledge, will not
constitute a breach of, or default under, or a violation of any instrument or
agreement known to such counsel by which the Trading Manager is bound and will
not violate any order, law, rule or regulation applicable to the Trading Manager
of any court or any governmental body or administrative agency or panel or
self-regulatory organization having jurisdiction over the Trading Manager.
(vi) Based upon reliance of certain SEC No-Action
letters, as of the closing the performance by the Trading Manager of the
transactions contemplated by this Agreement and as described in the Prospectus
will not require the Trading Manager to be registered as an "investment adviser"
as that term is defined in the Investment Advisers Act of 1940, as amended.
(vii) Nothing has come to such counsel's attention
that would lead them to believe that, (A) the Registration Statement at the time
it became effective, insofar as the Trading Manager and the Trading Manager
Principals are concerned, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (b) the Prospectus at the time it
was issued or at the closing contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein relating to the Trading Manager or the Trading Manager Principals, in
light of the circumstances under which they were made, not misleading; provided,
however, that such counsel need express no opinion or belief as to the
performance data and notes or descriptions thereto set forth in the Registration
Statement and Prospectus, except that such counsel shall opine, without
rendering any opinion as to the accuracy of the information in such tables, that
the actual performance tables of the Trading Manager set forth in the Prospectus
comply as to form in all material respects with applicable CFTC rules and all
CFTC and NFA interpretations thereof, except as disclosed in the Prospectus or
as otherwise permitted by the CFTC staff.
In giving the foregoing opinion, counsel may rely on
information obtained from public officials, officers of the Trading Manager, and
other resources believed by it to be responsible and may assume that signatures
on all documents examined by it are genuine.
(c) To DWR, the General Partner and the Partnership, a
report dated the date of the closing which shall present, for the period from
the date after the last day covered by the historical performance records in the
Prospectus to the latest practicable day before closing, figures which shall be
a continuation of such historical performance records and which shall certify
that such figures are, to the best of such Trading Manager's knowledge, accurate
in all material respects.
(2) The General Partner shall, at the Partnership's Initial
Closing and at the request of the Trading Manager at any Monthly Closing (as
defined in the Prospectus), provide the following:
(a) To the Trading Manager a certificate, dated the date
of such closing and in form and substance satisfactory to the Trading Manager,
to the effect that:
(i) The representations and warranties by the
Partnership and the General Partner in this Agreement are true, accurate, and
complete on and as of the date of the closing as if made on the date of the
closing.
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued by the SEC and no proceedings for
that purpose have been instituted or are pending or, to the knowledge of the
General Partner, are contemplated or threatened under the 1933 Act. No order
preventing or suspending the use of the Prospectus has been issued by the SEC,
NASD, CFTC, or NFA and no proceedings for that purpose have been instituted or
are pending or, to the knowledge of the General Partner, are contemplated or
threatened under the 1933 Act or the Commodity Act.
(iii) The Partnership and the General Partner have
performed all of their obligations and satisfied all of the conditions on their
part to be performed or satisfied under this Agreement at or prior to the date
of the closing.
(b) Cadwalader, Wickersham & Taft, counsel to the General Partner and the
Partnership, shall deliver its opinion to the parties hereto at the Initial
Closing, in form and substance satisfactory to the parties hereto, to the effect
that:
(i) The Partnership is a limited partnership duly
formed pursuant to the Certificate of Limited Partnership, the Limited
Partnership Agreement and the DRULPA and is validly existing under the laws of
the State of Delaware with full partnership power and authority to conduct the
business in which it proposes to engage as described in the Registration
Statement and Prospectus and to perform its obligations under this Agreement;
the Partnership has received a Certificate of Authority as contemplated under
the New York Revised Limited Partnership Act and is qualified to do business in
New York and need not affect any other filings or qualifications under the laws
of any other jurisdictions to conduct its business as described in the
Registration Statement and Prospectus.
(ii) The General Partner is duly organized and
validly existing and in good standing as a corporation under the laws of the
State of Delaware with full corporate power and authority to act as general
partner of the Partnership and is qualified to do business and is in good
standing as a foreign corporation in the State of New York and in each other
jurisdiction in which the nature or conduct of its business requires such
qualification and the failure to so qualify might reasonably be expected to
result in material adverse consequences to the Partnership or the General
Partner's ability to perform its obligations as described in the Registration
Statement and Prospectus. The General Partner has full corporate power and
authority to conduct its business as described in the Registration Statement and
Prospectus and to perform its obligations under this Agreement.
(iii) The General Partner and each of its principals
as defined in Rule 3.1 under the Commodity Act, and the Partnership have all
federal and state governmental and regulatory licenses and memberships required
by law and have received or made all filings and registrations necessary in
order for the General Partner and the Partnership to perform their obligations
under this Agreement, to conduct their business as described in the Registration
Statement and Prospectus, except for such licenses, memberships, filings, and
registrations, the absence of which would not have a material adverse effect on
their ability to act as described in the Registration Statement and Prospectus,
or to perform their obligations under this Agreement, and, to the best of such
counsel's knowledge, after due investigation, none of such licenses and
memberships or registrations have been rescinded, revoked or suspended.
(iv) This Agreement has been duly authorized,
executed and delivered by or on behalf of the General Partner and the
Partnership, and constitutes a valid and binding agreement of the General
Partner and the Partnership, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium or similar laws at the
time in effect affecting the enforceability generally of rights of creditors and
by general principles of equity (regardless or whether such enforceability is
considered in a proceeding in equity or at law), and except as enforceability of
indemnification, exculpation and contribution provisions contained in such
agreements may be limited by applicable law or public policy.
(v) The execution and delivery of this Agreement and
the offer and sale of the Units by the Partnership and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions contemplated herein and therein and in the Prospectus will not be
in contravention of the General Partner's certificate of incorporation or
bylaws, the Certificate of Limited Partnership, or the Limited Partnership
Agreement and, to the best of such counsel's knowledge based upon due inquiry of
certain officers of the General Partner, will not constitute a breach of, or
default under, or a violation of any agreement or instrument known to such
counsel by which the General Partner or the Partnership is bound and will not
violate any order, law, rule or regulation applicable to the General Partner or
the Partnership of any court or any governmental body or administrative agency
or panel or self-regulatory organization having jurisdiction over the General
Partner or the Partnership.
(vi) To the best of such counsel's knowledge, based
upon due inquiry of certain officers of the General Partner, there are no
actions, claims or proceedings pending or threatened in any court or before or
by any governmental or administrative body, nor have there been any such suits,
claims or proceedings within the five years preceding the date of the
Prospectus, to which the General Partner, any General Partner Principal, or the
Partnership is or was a party, or to which any of their assets is or was
subject, which would be material to an investor's decision to invest in the
Partnership or which might reasonably be expected to materially adversely affect
the condition, financial or otherwise, or business of the General Partner, or
the Partnership, whether or not arising in the ordinary course of business, or
impair their ability to discharge their obligations as described in the
Prospectus.
(vii) The Registration Statement is effective under
the 1933 Act and, to the best of such counsel's knowledge, no proceedings for a
stop order are pending or threatened under Section 8(d) of the 1933 Act or any
similar state securities laws.
(viii) At the time the Registration Statement became
effective, the Registration Statement, and at the time the Prospectus was issued
and as of the closing, the Prospectus, complied as to form in all material
respects with the requirements of the 1933 Act, the Securities Regulations, the
Commodity Act and the regulations of the NFA and NASD. Nothing has come to such
counsel's attention that would lead them to believe that the Registration
Statement at the time it became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus at the time it was issued or at the closing contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
where made, not misleading; provided, however, that Cadwalader, Wicksherman &
Taft need express no opinion or belief (a) as to information in the Registration
Statement or the Prospectus regarding any Trading Manager or its principals, or
(b) as to the financial statements, notes thereto and other financial or
statistical data set forth in the Registration Statement and Prospectus, or (c)
as to the performance data and notes or descriptions thereto set forth in the
Registration Statement and Prospectus.
(ix) Based upon reliance on certain SEC No-Action
letters, as of the closing, the Partnership need not register as an "investment
company" under the Investment Company Act of 1940, as amended.
In rendering its opinion, such counsel may rely on
information obtained from public officials, officers of the General Partner and
other sources believed by it to be responsible and may assume that signatures on
all documents examined by it are genuine, and that a Subscription Agreement and
Power of Attorney in the forms referred to in the Prospectus have been duly
authorized, completed, dated, executed, and delivered and funds representing the
full subscription price for the Units purchased have been delivered by each
purchaser of Units in accordance with the requirements set forth in the
Prospectus.
18. Inconsistent Filings.
---------------------
The Trading Manager agrees not to file, participate in the
filing of, or publish any description of the Trading Manager, or of its
respective principals or trading approaches that is materially inconsistent with
those in the Registration Statement and Prospectus, without so informing the
General Partner and furnishing to it copies of all such filings within a
reasonable period prior to the date of filing or publication.
19. Disclosure Documents.
---------------------
During the term of this Agreement, the Trading Manager shall
furnish to the General Partner promptly copies of all disclosure documents filed
with the CFTC or NFA by the Trading Manager. The General Partner acknowledges
receipt of the Trading Manager's disclosure document dated May 16, 1994.
20. Notices.
--------
All notices required to be delivered under this Agreement
shall be in writing and shall be effective when delivered personally on the day
delivered, or when given by registered or certified mail, postage prepaid,
return receipt requested, on the day actually received, addressed as follows (or
to such other address as the party entitled to notice shall hereafter designate
in accordance with the terms hereof):
if to the Partnership:
Dean Witter Spectrum Strategic L.P.
c/o Demeter Management Corporation
2 World Trade Center
62nd Floor
New York, New York 10048
if to the General Partner:
Demeter Management Corporation
2 World Trade Center
62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
if to the Trading Manager:
Blenheim Investments, Inc.
P.O. Box 7242
Two Worlds Fair Drive
Somerset, New Jersey 08873
Attn: Ronald S. Tauber
21. Survival.
---------
The provisions of this Agreement shall survive the termination
of this Agreement with respect to any matter arising while this Agreement was in
effect.
22. Governing Law.
--------------
This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York. If any action or proceeding
shall be brought by a party to this Agreement or to enforce any right or remedy
under this Agreement, each party hereto hereby consents and will submit to the
jurisdiction of the courts of the State of New York or any Federal court sitting
in the County, City and State of New York. Any action or proceeding brought by
any party to this Agreement to enforce any right, assert any claim or obtain any
relief whatsoever in connection with this Agreement shall be brought by such
party exclusively in the courts of the State of New York or any Federal court
sitting in the County, City and State of New York.
23. Remedies.
---------
In any action or proceeding arising out of any of the
provisions of this Agreement, the Trading Manager agrees not to seek any
prejudgment equitable or ancillary relief. The Trading Manager agrees that its
sole remedy in any such action or proceeding shall be to seek actual monetary
damages for any breach of this Agreement.
24. Headings.
---------
Headings to sections herein are for the convenience of the
parties only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.
DEAN WITTER SPECTRUM STRATEGIC L.P.
by Demeter Management Corporation,
General Partner
By /s/ Mark J. Hawley
--------------------------
DEMETER MANAGEMENT CORPORATION
By /s/ Mark J. Hawley
--------------------------
BLENHEIM INVESTMENT, INC.
By /s/ Ronald S. Tauber
--------------------------
EXHIBIT 10.02
MANAGEMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of November, 1994,
among DEAN WITTER SPECTRUM STRATEGIC L.P., a Delaware limited partnership (the
"Partnership"), DEMETER MANAGEMENT CORPORATION, a Delaware corporation (the
"General Partner"), and WILLOWBRIDGE ASSOCIATES INC., a Delaware corporation
(the "Trading Manager").
W I T N E S S E T H:
WHEREAS, the Partnership has been organized pursuant to the
Limited Partnership Agreement dated as of May 27, 1994 (the "Limited Partnership
Agreement"), to engage primarily in speculative trading of commodities
(including foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, obligations of or guaranteed by the United
States Government, and any other financial instruments, securities, stock,
financial and economic indexes, and items which are now or may hereafter be the
subject of futures contract trading), futures contracts, forward contracts,
foreign exchange commitments, options on physical commodities and on futures
contracts, spot (cash) commodities and currencies, and any rights pertaining
thereto (hereinafter referred to collectively as "futures interests") and
securities (such as United States Treasury bills) approved by the Commodity
Futures Trading Commission (the "CFTC") for investment of customer funds;
WHEREAS, the Partnership intends to become a member
partnership of the Dean Witter Spectrum Series (the "Fund Group") by entering
into an agreement pursuant to which units of limited partnership interest
("Units") of such member partnerships will be sold to investors in a common
offering under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement on Form S-1 (No. 33-80146) (as amended from
time to time, the "Registration Statement") and a final Prospectus dated
September 15, 1994, constituting a part thereof (as amended and supplemented,
the "Prospectus"), and thereafter, pursuant to which such Units can be exchanged
by a limited partner of a member partnership of the Fund Group at the end of any
month after he has been a limited partner of a member partnership of the Fund
Group for six months for Units of other member partnerships of the Fund Group at
100% of the respective Net Asset Value thereof;
WHEREAS, the Trading Manager has extensive experience trading
in futures interests and is willing to provide certain services and undertake
certain obligations as set forth herein;
WHEREAS, the Partnership desires the Trading Manager to act as
a trading manager for the Partnership and to make investment decisions with
respect to futures interests for its allocated share of the Partnership's Net
Assets and the Trading Manager desires so to act; and
WHEREAS, the Partnership, the General Partner and the Trading
Manager wish to enter into this Management Agreement which, among other things,
sets forth certain terms and conditions upon which the Trading Manager will
conduct a portion of the Partnership's futures interests trading;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Undertaking in Connection with the
Continuing Offering of Units.
----------------------------------
(a) The Trading Manager agrees with respect to the
continuing offering of Units: (i) to make all disclosures regarding itself, its
principals and affiliates, its trading performance, its trading systems,
methods, and strategies (subject to the need, in the reasonable discretion of
the Trading Manager, to preserve the secrecy of proprietary information
concerning such systems, methods, and strategies), any client accounts over
which it has discretionary trading authority (other than the names of any such
clients), and otherwise, as the Partnership may reasonably require (x) to be
made in the Partnership's Prospectus required by Section 4.21 of the regulations
of the CFTC, including any amendments or supplements thereto, or (y) to comply
with any applicable federal or state law or rule or regulation, including those
of the Securities and Exchange Commission (the "SEC"), the CFTC, the National
Futures Association (the "NFA"), the National Association of Securities Dealers,
Inc. (the "NASD"), or any other regulatory body, exchange, or board; and (ii)
otherwise to cooperate with the Partnership and the General Partner by providing
information regarding the Trading Manager in connection with the preparation and
filing of the Registration Statement and Prospectus, including any amendments or
supplements thereto, with the SEC, CFTC, NFA, NASD, and with appropriate
governmental authorities as part of making application for registration of the
Units under the securities or Blue Sky laws of such jurisdictions as the
Partnership may deem appropriate. As used herein, the term "principal" shall
have the meaning as defined in Section 4.10(e) of the CFTC's Regulations and the
term "affiliate" shall mean an individual or entity that directly or indirectly
controls, is controlled by, or is under common control with, the Trading
Manager.
(b) If, while Units continue to be offered and sold, the
Trading Manager becomes aware of any materially untrue or misleading statement
or omission regarding itself or any of its principals or affiliates in the
Registration Statement or Prospectus, or of the occurrence of any event or
change in circumstances which would result in there being any materially untrue
or misleading statement or omission in the Registration Statement or Prospectus
regarding itself or any of its principals or affiliates, such Trading Manager
shall promptly notify the General Partner and shall cooperate with it in the
preparation of any necessary amendments or supplements to the Registration
Statement or Prospectus. Neither the Trading Manager nor any of its principals,
or affiliates, or any stockholders, officers, directors, or employees shall
distribute the Prospectus or selling literature or shall engage in any selling
activities whatsoever in connection with the continuing offering of Units except
as may be specifically requested by the General Partner.
2. Duties of the Trading Manager.
------------------------------
(a) Upon the commencement of trading operations by
the Partnership, the Trading Manager hereby agrees to act as a Trading Manager
for the Partnership and, as such, shall have sole authority and responsibility
for directing the investment and reinvestment of its allocable share of the Net
Assets of the Partnership on the terms and conditions and in accordance with the
prohibitions and trading policies set forth in this Agreement or provided in
writing to the Trading Manager; provided, however, that the General Partner may
override the instructions of the Trading Manager to the extent necessary (i) to
comply with the trading policies of the Partnership described in writing to the
Trading Manager and with applicable speculative position limits, (ii) to fund
any distributions, redemptions, or reapportionments among other trading managers
to the Partnership, (iii) to pay the Partnership's expenses, (iv) to the extent
the General Partner believes doing so is necessary for the protection of the
Partnership, (v) to terminate the futures interests trading of the Partnership,
or (vi) to comply with any applicable law or regulation. The General Partner
agrees not to override any such instructions unless the Trading Manager fails to
comply with a request of the General Partner to make the necessary amount of
funds available to the Partnership within five days of such request. The Trading
Manager shall not be liable for the consequences of any decision by the General
Partner to override instructions of the Trading Manager, except to the extent
that the Trading Manager is in breach of this Agreement. In performing services
to the Partnership the Trading Manager may not materially alter the trading
program(s) used by the Trading Manager in investing and reinvesting its
allocable share of the Partnership's Net Assets in futures interests as
described in the Prospectus without the prior written consent of the General
Partner, it being understood that changes in the futures interests traded shall
not be deemed an alteration in the Trading Manager's trading program(s).
Notwithstanding the foregoing, if the Trading Manager is using a trading system
subject to its License Agreement with Caxton Corporation and such License
Agreement is terminated, no such prior written consent shall be necessary and
the parties shall mutually agree on a replacement trading approach to be used
for the Partnership. The Partnership and the General Partner acknowledge that in
agreeing to manage an account for the Partnership the Trading Manager makes no
guarantee of profits or of protections against loss.
(b) The Trading Manager shall:
(i) Exercise good faith and due care in trading
futures interests for the account of the Partnership in accordance with the
prohibitions and trading policies of the Partnership provided in writing to the
Trading Manager and the trading systems, methods and strategies of the Trading
Manager described in the Prospectus, with such changes and additions to such
trading systems, methods or strategies as the Trading Manager, from time to
time, incorporates into its trading approach for accounts the size of the
Partnership.
(ii) Subject to reasonable assurances of
confidentiality by the General Partner and the Partnership, provide the General
Partner, within 30 days of a request therefor by the General Partner, with
information comparing the performance of the Partnership's account and the
performance of all other client accounts directed by the Trading Manager using
the trading systems used by the Trading Manager for the Partnership over a
specified period of time. In providing such information, the Trading Manager may
take such steps as are necessary to assure the confidentiality of the Trading
Manager's clients' identities. The Trading Manager shall, upon the General
Partner's request, consult with the General Partner concerning any discrepancies
between the performance of such other accounts and the Partnership's account.
The Trading Manager shall promptly inform the General partner of any material
discrepancies of which the Trading Manager is aware. The General Partner
acknowledges that different trading strategies or methods may be utilized for
differing sizes of accounts, accounts with different trading policies, accounts
experiencing differing inflows or outflows of equity, accounts which commence
trading at different times, accounts which have different portfolios or
different fiscal years and that such differences may cause divergent trading
results.
(iii) Upon request of the General Partner and subject
to reasonable assurances of confidentiality by the General Partner and the
Partnership, provide the General Partner with all material information
concerning the Trading Manager other than proprietary information (including,
without limitation, information relating to changes in control, personnel,
trading approach, or financial condition). The General Partner acknowledges that
all trading instructions made by the Trading Manager will be held in confidence
by the General Partner, except to the extent necessary to conduct the business
of the Partnership or as required by law.
(iv) Inform the General Partner when the Trading
Manager's open positions maintained by the Trading Manager exceed the Trading
Manager's applicable speculative position limits.
(c) All purchases and sales of futures interests pursuant
to this Agreement shall be for the account, and at the risk, of the Partnership
and not for the account, or at the risk, of the Trading Manager or any of its
stockholders, directors, officers, or employees, or any other person, if any,
who controls the Trading Manager within the meaning of the Securities Act. All
brokerage fees arising from trading by the Trading Manager shall be for the
account of the Partnership. The Trading Manager makes no representations as to
whether its trading will produce profits or avoid losses.
(d) Notwithstanding anything in this Agreement to the
contrary, the Trading Manager shall assume financial responsibility for any
errors committed or caused by it in transmitting orders for the purchase or sale
of futures interests for the Partnership's account, including payment to DWR of
the floor brokerage commissions, exchange and NFA fees, and other transaction
charges and give-up charges incurred by DWR on such trades but only for the
amount of DWR's out-of-pocket costs in respect thereof. The Trading Manager's
errors shall include, but not be limited to, inputting improper trading signals
or communicating incorrect orders to DWR. However, the Trading Manager shall not
be responsible for errors committed or caused by DWR or by floor brokers or
other FCM's. The Trading Manager shall have an affirmative obligation promptly
to notify the General Partner of its own errors, and the Trading Manager shall
use its best efforts to identify and promptly notify the General Partner of any
order or trade which the Trading Manager reasonably believes was not executed in
accordance with its instructions to DWR or such other commodity broker utilized
to execute orders for the Partnership.
(e) Prior to the commencement of trading by the
Partnership, the General Partner on behalf of the Partnership shall deliver to
the Trading Manager a trading authorization appointing the Trading Manager the
Partnership's attorney-in-fact for such purpose.
3. Designation of Additional Trading
Managers and Reallocation of Net Assets.
----------------------------------------
(a) If the General Partner at any time deems it to be in
the best interests of the Partnership, the General Partner may designate an
additional trading manager or managers for the Partnership and may apportion to
such additional trading manager(s) the management of such amounts of Net Assets
(as defined in Section 6(c) hereof) as the General Partner shall determine in
its absolute discretion. The designation of an additional trading manager or
managers and the apportionment of Net Assets to any such trading manager(s)
pursuant to this Section 3 shall neither terminate this Agreement nor modify in
any regard the respective rights and obligations of the Partnership, the General
Partner and the Trading Manager hereunder. In the event that an additional
trading manager or managers are so designated, the Trading Manager shall
thereafter receive management and incentive fees based, respectively, on that
portion of the Net Assets managed by the Trading Manager and the Trading Profits
attributable to the trading by the Trading Manager.
(b) The General Partner may at any time and from time to
time upon two business days' prior notice reallocate Net Assets allocated to the
Trading Manager to any other trading manager or managers of the Partnership or
allocate additional Net Assets upon two business days' prior notice to the
Trading Manager from such other trading manager or managers; provided that any
such addition to or withdrawal from Net Assets allocated to the Trading Manager
of the Net Assets will only take place on the last day of a month unless the
General Partner determines that the best interests of the Partnership require
otherwise.
4. Trading Manager Independent.
----------------------------
For all purposes of this Agreement, the Trading Manager shall
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized, have no authority to act for or represent the
Partnership in any way or otherwise be deemed an agent of the Partnership.
Nothing contained herein shall be deemed to require the Partnership to take any
action contrary to the Limited Partnership Agreement, the Certificate of Limited
Partnership of the Partnership as from time to time in effect (the "Certificate
of Limited Partnership"), or any applicable law or rule or regulation of any
regulatory body, exchange, or board. Nothing herein contained shall constitute
the Trading Manager or any other trading manager or managers for the Partnership
as members of any partnership, joint venture, association, syndicate or other
entity, or be deemed to confer on any of them any express, implied, or apparent
authority to incur any obligation or liability on behalf of any other. It is
expressly agreed that the Trading Manager is neither a promoter, sponsor, or
issuer with respect to the Partnership, nor does the Trading Manager have any
authority or responsibility with respect to the sale or issuance of Units.
5. Commodity Broker.
-----------------
The Trading Manager shall effect all transactions in commodity
interests for the Partnership through, and shall maintain a separate account
with, such commodity broker or brokers as the General Partner shall direct. At
the present time, Dean Witter Reynolds Inc. ("DWR") shall act as commodity
broker for the Partnership. The General Partner shall provide the Trading
Manager with copies of brokerage statements. Notwithstanding that DWR shall act
as commodity broker for the Partnership, the Trading Manager may execute trades
through floor brokers other than those employed by DWR so long as arrangements
are made for such floor brokers to "give-up" or transfer the positions to DWR
and provided that the rates charged by such floor brokers have been approved in
advance by DWR. The parties acknowledge that the Trading Manager has no
authority or responsibility for selecting the commodity broker or for the
negotiation of brokerage commission rates, and is not responsible for the
execution and clearance of the Partnership's trades once complete orders have
been transmitted to DWR except as provided in Section 2(d) hereof.
6. Fees.
-----
(a) For the services to be rendered to the Partnership by the
Trading Manager under this Agreement, the Partnership shall pay the Trading
Manager the following fees:
(i) A monthly management fee, without regard to the
profitability of the Trading Manager's trading for the Partnership's account,
equal to 1/3 of 1% (a 4% annual rate) of the "Net Assets" of the Partnership
allocated to the Trading Manager (as defined in Section 6(c)) as of the opening
of business on the first day of each calendar month.
(ii) A monthly incentive fee equal to 15% of the
"Trading Profits" (as defined in Section 6(d)) as of the end of each calendar
month, payable on a non-netted basis vis-a-vis other trading managers(s) of the
Partnership. The initial incentive period will commence on the date of the
Partnership's initial closing (the "Initial Closing") and shall end on the last
day of the first month ending after such Closing occurs.
(b) If this Agreement is terminated on a date other than the
last day of a month, the incentive fee described above shall be determined as if
such date were the end of a month. If this Agreement is terminated on a date
other than the end of a month, the management fee described above shall be
determined as if such date were the end of a month, but such fee shall be
prorated based on the ratio of the number of trading days in the month through
the date of termination to the total number of trading days in the month. If,
during any month after the Partnership commences trading operations (including
the month in which the Partnership commences such operations), the Partnership
does not conduct business operations, or suspends trading for the account of the
Partnership managed by the Trading Manager, or, as a result of an act or
material failure to act by the Trading Manager, is otherwise unable to utilize
the trading advice of the Trading Manager on any of the trading days of that
period for any reason, the management fee described above shall be prorated
based on the ratio of the number of trading days in the month which the
Partnership account managed by the Trading Manager engaged in trading operations
or utilizes the trading advice of the Trading Manager to the total number of
trading days in the month. The management fee payable to the Trading Manager for
the month in which the Partnership begins to receive trading advice from the
Trading Manager pursuant to this Agreement shall be prorated based on the ratio
of the number of trading days in the month from the day the Partnership begins
to receive such trading advice to the total number of trading days in the month.
(c) As used herein, the term "Net Assets" shall mean the
total assets of the Partnership (including, but not limited to, all cash and
cash equivalents, accrued interest and amortization of original issue discount,
and the market value of all open futures interest positions and other assets of
the Partnership) less all liabilities of the Partnership (including, but not
limited to, all brokerage fees, incentive and management fees, 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
or option contract traded on a United States exchange shall mean the settlement
price on the exchange on which the particular futures or option contract shall
be traded by the Partnership on the day with respect to which the Net Assets are
being determined; provided, however, that if a contract could not be liquidated
on such day due to the operation of daily limits or other rules of the exchange
on which that contract shall be traded or otherwise, the settlement price on the
first subsequent day on which the contract could be liquidated shall be the
market value of such contract for such day. The market value of a forward
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.
(d) As used herein, the term "Trading Profits" shall mean net
futures interests trading profits (realized and unrealized) earned on the
Partnership's Net Assets allocated to the Trading Manager, decreased by the
Trading Manager's monthly management fees and a pro rata portion of the monthly
brokerage fee relating to the Trading Manager's allocated Net Assets; with such
trading profits and items of decrease determined from the end of the last month
in which an incentive fee was earned by the Trading Manager or, if no incentive
fee has been earned previously by the Trading Manager, from the date that the
Partnership commenced trading to the end of the month as of which such incentive
fee calculation is being made.
(e) If any payment of incentive fees is made to the Trading
Manager on account of Trading Profits earned by the Partnership on Net Assets
allocated to the Trading Manager and the Partnership thereafter fails to earn
Trading Profits or experiences losses for any subsequent incentive period with
respect to such amounts so allocated, the Trading Manager shall be entitled to
retain such amounts of incentive fees previously paid to the Trading Manager in
respect of such Trading Profits. However, no subsequent incentive fees shall be
payable to the Trading Manager until the Partnership has again earned Trading
Profits on the Trading Manager's allocated Net Assets; provided, however, that
if the Trading Manager's allocated Net Assets are reduced or increased because
of redemptions, additions or reallocations which occur at the end of, or
subsequent to, an incentive period in which the Partnership experiences a
futures interests trading loss with respect to Net Assets allocated to the
Trading Manager, the trading loss for that incentive period which must be
recovered before the Trading Manager's allocated Net Assets will be deemed to
experience Trading Profits will be equal to the amount determined by (x)
dividing the Trading Manager's allocated Net Assets after such increase or
decrease by the Trading Manager's allocated Net Assets immediately before such
increase or decrease and (y) multiplying that fraction by the amount of the
unrecovered futures interests trading loss experienced in that month prior to
such increase or decrease. In the event that the Partnership experiences a
futures interests trading loss in more than one month with respect to the
Trading Manager's allocated Net Assets without the payment of an intervening
incentive fee and Net Assets are increased or reduced in more than one such
month because of redemptions, additions or reallocations, then the trading loss
for each such month shall be adjusted in accordance with the formula described
above and such increased or reduced amount of futures interests trading loss
shall be carried forward and used to offset subsequent futures interest trading
profits. The portion of redemptions to be allocated to the Net Assets of the
Partnership managed by each of the trading managers to the Partnership shall be
in the sole discretion of the General Partner.
(f) The Partnership will remit the management and incentive fees to the Trading
Manager as soon as practicable, but in no event later than 30 days in the case
of the management fee, and 45 days in the case of the incentive fee, of the
month-end as of which they are due, together with an itemized statement showing
the calculations.
7. Term.
-----
This Agreement shall continue in effect for a period of three
years after the end of the month in which the Partnership commences trading
operations. At least thirty days prior to the expiration of such three-year
period, the Trading Manager may terminate this Agreement at the end of the
three-year period by providing written notice to the Partnership indicating that
the Trading Manager desires to terminate such Agreement at the end of such
three-year period. If the Agreement is not terminated upon the expiration of the
three-year period, then upon the expiration of such three-year period, this
Agreement shall automatically renew for an additional one-year period and shall
continue to renew for additional one-year periods until this Agreement is
otherwise terminated, as provided for herein. At least thirty days prior to the
expiration of any such one-year period, the Trading Manager may terminate this
Agreement at the end of the current one-year period by providing written notice
to the Partnership indicating that the Trading Manager desires to terminate such
Agreement at the end of such one-year period. This Agreement shall terminate if
the Partnership terminates. The Partnership shall have the right to terminate
this Agreement at its discretion (a) at any month end upon 5 days' prior written
notice to the Trading Manager or (b) at any time upon written notice to the
Trading Manager upon the occurrence of any of the following events: (i) if
Philip L. Yang ceases for any reason to be an active executive officer of the
Trading Manager; (ii) if the Trading Manager becomes bankrupt or insolvent:
(iii) if the Trading Manager is unable to use its trading systems or methods as
in effect on the date hereof and as refined and modified in the future for the
benefit of the Partnership; (iv) if the registration, as a commodity trading
advisor, of the Trading Manager with the CFTC or its membership in the NFA is
revoked, suspended, terminated, or not renewed, or limited or qualified in any
respect; (v) except as provided in Section 12 hereof, if the Trading Manager
merges or consolidates with, or sells or otherwise transfers its advisory
business, or all or a substantial portion of its assets, any portion of its
futures interests trading systems or methods, or its goodwill to, any individual
or entity; (vi) if the Trading Manager's initially allocated Net Assets, after
adjusting for distributions, additions, redemptions, or reallocations, if any,
shall decline by 50% or more as a result of trading losses nor if Net Assets
allocated to the Trading Manager fall below $1,000,000.00 at any time; (vii) if,
at any time, the Trading Manager violates any trading or administrative policy
described in writing to the Trading Manager by the General Partner, except with
the prior express written consent of the General Partner; or (viii) if the
Trading Manager fails in a material manner to perform any of its obligations
under this Agreement. The Trading Manager may terminate this Agreement at any
time, upon written notice to the Partnership, in the event: (i) that the General
Partner imposes additional trading limitation(s) in the form of one or more
trading policies or administrative policies which the Trading Manager does not
agree to follow in its management of its allocable share of the Partnership's
Net Assets; (ii) the General Partner objects to the Trading Manager implementing
a proposed material change in the Trading Manager's trading program(s) used by
the Partnership and the Trading Manager certifies to the General Partner in
writing that it believes such change is in the best interests of the
Partnership; (iii) the General Partner overrides a trading instruction of the
Trading Manager for reasons unrelated to a determination by the General Partner
that the Trading Manager has violated the Partnership's trading policies and the
Trading Manager certifies to the General Partner in writing that as a result,
the Trading Manager believes the performance results of the Trading Manager
relating to Partnership will be materially adversely affected; (iv) the
Partnership materially breaches this Agreement and does not correct the breach
within 10 days of receipt of a written notice of such breach from the Trading
Manager; (v) the Trading Manager has amended its trading program to include a
foreign futures or option contract which may lawfully be traded by the
Partnership under CFTC regulations and counsel, mutually acceptable to the
parties, has not opined that such inclusion would cause adverse tax consequences
to Limited Partners and the General Partner does not consent to the Trading
Manager's trading such contract for the Partnership within 5 business days of a
written request by the Trading Manager to do so, and, if such consent is given,
does not make arrangements to facilitate such trading within 30 days of such
notice; (vi) the assets allocated to the Trading Manager fall below $1,000,000
at any time; or (vii) if the registration of the General Partner as a commodity
pool operator with the CFTC or its membership in the NFA is revoked, suspended,
terminated or not renewed, or limited or qualified in any respect.
The indemnities set forth in Section 8 hereof shall survive
any termination of this Agreement.
8. Standard of Liability; Indemnifications.
----------------------------------------
(a) Limitation of Trading Manager Liability. In respect of
the Trading Manager's role in the futures interests trading of the Partnership's
assets, none of the Trading Manager, or its controlling persons, its affiliates,
and their respective directors, officers, shareholders, employees or controlling
persons shall be liable to the Partnership or the General Partner or their
partners, officers, shareholders, directors or controlling persons except that
the Trading Manager shall be liable for acts or omissions of any such person
provided that such act or omission constitutes a breach of this Agreement or a
representation, warranty or covenant herein, misconduct or negligence or is the
result of any such person not having acted in good faith and in the reasonable
belief that such actions or omissions were in, or not opposed to, the best
interests of the Partnership.
(b) Trading Manager Indemnity in Respect of Management
Activities. The Trading Manager shall indemnify, defend and hold harmless the
Partnership and the General Partner, their controlling persons, their affiliates
and their respective directors, officers, shareholders, employees, and
controlling persons from and against any and all losses, claims, damages,
liabilities (joint and several), costs, and expenses (including any reasonable
investigatory, legal, and other expenses incurred in connection with, and any
amounts paid in, any settlement; provided that the Trading Manager shall have
approved such settlement) incurred as a result of any action or omission
involving the Partnership's futures interests trading of the Trading Manager,
provided that such liability arises from an act or omission of the Trading
Manager, or any of its controlling persons or affiliates or their respective
directors, officers, partners, shareholders, or employees which is found by a
court of competent jurisdiction upon entry of a final judgment (or, if no final
judgment is entered, by an opinion rendered by counsel who is approved by the
Partnership and the Trading Manager, such approval not to be unreasonably
withheld) to be breach of this Agreement or a representation, warranty or
covenant herein, the result of bad faith, misconduct or negligence, or conduct
not done in good faith in the reasonable belief that it was in, or not opposed
to, the best interests of the Partnership.
(c) Partnership and General Partner Indemnity in Respect of
Management Activities. The Partnership and the General Partner shall, jointly
and severally, indemnify, defend, and hold harmless the Trading Manager, its
controlling persons, their affiliates and their respective directors, officers,
shareholders, employees, and controlling persons, from and against any and all
losses, claims, damages, liabilities (joint and several), costs, and expenses
(including any reasonable investigatory, legal, and other expenses incurred in
connection with, and any amounts paid in, any settlement; provided that the
Partnership shall have approved such settlement) resulting from a demand, claim,
lawsuit, action, or proceeding (other than those incurred as a result of claims
brought by or in the right of an indemnified party) relating to the futures
interests trading activities of the Partnership undertaken by the Trading
Manager; provided that a court of competent jurisdiction upon entry of a final
judgement finds (or, if no final judgement is entered, an opinion is rendered to
the Partnership by independent counsel reasonably acceptable to both parties) to
the effect that the action or inaction of such indemnified party that was the
subject of the demand, claim, lawsuit, action, or proceeding did not constitute
negligence, misconduct, or a breach of this Agreement or a representation,
warranty or covenant of the Trading Manager herein and was done in good faith
and in a manner such indemnified party reasonably believed to be in, or not
opposed to, the best interests of the Partnership.
(d) Trading Manager Indemnity in Respect of Sale of Units.
The Trading Manager shall indemnify, defend and hold harmless DWR, the
Partnership, the General Partner, any Additional Seller, and their affiliates
and each of their officers, directors, principals, shareholders and controlling
persons from and against any loss, claim, damage, liability, cost, and expense,
joint and several, to which any indemnified person may become subject under the
Securities Act, the Securities and Exchange Act of 1934, the Commodity Exchange
Act, the securities or Blue Sky law of any jurisdiction, or otherwise (including
any reasonable investigatory, legal, and other expenses incurred in connection
with, and any amounts paid in, any settlement, provided that the Partnership
shall have approved such settlement, and in connection with any administrative
proceedings), in respect of the offer or sale of Units, insofar as such loss,
claim, damage, liability, cost, or expense (or action in respect thereof) arises
out of, or is based upon: (i) a breach by the Trading Manager of any
representation, warranty, or agreement in this Agreement or any certificate
delivered pursuant to this Agreement or the failure by the Trading Manager to
perform any covenant made by the Trading Manager herein; (ii) the factual
accuracy of the information relating to the Trading Manager in the Customer
Brochure attached hereto as Exhibit A (the "Customer Brochure"); or (iii) a
misleading or untrue statement or alleged misleading or untrue statement of a
material fact made in the Registration Statement, the Prospectus or an omission
or alleged omission to state a material fact therein which is required to be
stated therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading, and such statement or omission relates specifically to the Trading
Manager, or its Trading Manager Principals (including the historical performance
tables but excluding pro forma performance information unless such statement or
omission was based on information furnished by the Trading Manager for the
preparation of such pro forma performance information), or was made in reliance
upon, and in conformity with, written information or instructions furnished by
the Trading Manager for use therein, and in the case of the Customer Brochure
only, was approved in writing by the Trading Manager.
(e) Partnership and General Partner Indemnity in Respect of
Sale of Units. The Partnership and the General Partner agree, jointly and
severally, to indemnify, defend and hold harmless the Trading Manager, and each
of its officers, directors, principals, shareholders and controlling persons,
from and against any loss, claim, damage, liability, cost, and expense, joint
and several, to which any indemnified person may become subject under the
Securities Act, the Securities and Exchange Act of 1934, the Commodity Exchange
Act, the securities or Blue Sky law of any jurisdiction, or otherwise (including
any reasonable investigatory, legal, and other expenses incurred in connection
with, and any amounts paid in, any settlement, provided that the Partnership
shall have approved such settlement, and in connection with any administrative
proceedings), in respect of the offer or sale of Units (including a breach of a
representation, warranty or covenant of the General Partner or the Partnership),
unless such loss, claim, damage, liability, cost, or expense (or action in
respect thereof) arises out of, or is based upon: (i) a breach by the Trading
Manager of any representation, warranty, or agreement in this Agreement or the
failure by the Trading Manager to perform any covenant made by it herein; (ii)
the factual accuracy of information relating to the Trading Manager in the
Customer Brochure; or (iii) a misleading or untrue statement or alleged
misleading or untrue statement of a material fact made in the Registration
Statement or the Prospectus or an omission or alleged omission to state a
material fact therein which is required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, provided that such
misleading or untrue statement or alleged misleading or untrue statement or
omission or alleged omission does not relate to the Trading Manager or its
Trading Manager Principals (including the historical performance tables but
excluding the pro forma performance information unless such statement or
omission was based on information furnished by the Trading Manager in connection
with the preparation of such pro forma performance information) or was made in
reliance upon, and in conformity with, information or instructions furnished by
the Trading Manager for use therein.
(f) The foregoing agreements of indemnity shall be in
addition to, and shall in no respect limit or restrict, any other remedies which
may be available to an indemnified person.
(g) Promptly after receipt by an indemnified person of notice
of the commencement of any action, claim, or proceeding to which any of the
indemnities may apply, the indemnified person will notify the indemnifying party
in writing of the commencement thereof if a claim in respect thereof is to be
made against the indemnifying party hereunder; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which the indemnifying party may have to the indemnified person hereunder,
except where such omission has materially prejudiced the indemnifying party. In
case any action, claim, or proceeding is brought against an indemnified person
and the indemnified person notifies the indemnifying party of the commencement
thereof as provided above, the indemnifying party will be entitled to
participate therein and, to the extent that the indemnifying party desires, to
assume the defense thereof with counsel selected by the indemnifying party and
not unreasonably disapproved by the indemnified person. After notice from the
indemnifying party to the indemnified person of the indemnifying party's
election so to assume the defense thereof as provided above, the indemnifying
party will not be liable to the indemnified person under the indemnity
provisions hereof for any legal and other expenses subsequently incurred by the
indemnified person in connection with the defense thereof, other than reasonable
costs of investigation.
Notwithstanding the proceeding paragraph, if, in any action,
claim, or proceeding as to which indemnification is or may be available
hereunder, an indemnified person reasonably determines that its interests are or
may be adverse, in whole or in part, to the indemnifying party's interests or
that there may be legal defenses available to the indemnified person which are
different from, in addition to, or inconsistent with the defenses available to
the indemnifying party, the indemnified person may retain its own counsel in
connection with such action, claim, or proceeding and will be indemnified by the
indemnifying party for any legal and other expenses reasonably incurred in
connection with investigating or defending such action, claim, or proceeding.
In no event will the indemnifying party be liable for the fees
and expenses of more than one counsel for all indemnified persons in connection
with any one action, claim, or proceeding or in connection with separate but
similar or related actions, claims, or proceedings in the same jurisdiction
arising out of the same general allegations. The indemnifying party will not be
liable for any settlement of any action, claim, or proceeding effected without
the indemnifying party's express written consent, but if any action, claim, or
proceeding is settled with the indemnifying party's express written consent, the
indemnifying party will indemnify, defend, and hold harmless an indemnified
person as provided in this Section 8.
9. Right to Advise Others and Uniformity of
Acts and Practices.
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a) The Trading Manager is engaged in the business of
advising investors as to the purchase and sale of futures interests. During the
term of this Agreement, the Trading Manager, its principals and affiliates, will
be advising other investors (including affiliates and the stockholders,
officers, directors, and employees of the Trading Manager and its affiliates and
their families) and trading for their own accounts. However, under no
circumstances shall the Trading Manager by any act or omission knowingly or
deliberately favor any account advised or managed by the Trading Manager over
the account of the Partnership in any way or manner. For purposes of this
Agreement, the Trading Manager shall not be deemed to be favoring another
account over the Partnership's account if the Trading Manager trades such
account at a different degree of leverage, pursuant to a different trading
strategy or in accordance with different fee structures, trading policies, or
portfolios, or if in accordance with the Trading Manager's money management
principles, the Trading Manager does not trade certain commodity interest
contracts for an account based on the amount of equity in such account. The
Trading Manager agrees to treat the Partnership in a fiduciary capacity to the
extent recognized by applicable law, but, subject to that standard, the Trading
Manager or any of its principals or affiliates shall be free to advise and
manage accounts for other investors and shall be free to trade on the basis of
the same trading systems, methods, or strategies employed by the Trading Manager
for the account of the Partnership, or trading systems, methods, or strategies
which are entirely independent of, or materially different from, those employed
for the account of the Partnership, and shall be free to compete for the same
futures interests as the Partnership or to take positions opposite to the
Partnership, where such actions do not knowingly or deliberately prefer any of
such accounts over the account of the Partnership.
(b) The Trading Manager shall not be restricted as to the
number or nature of its clients, except that: (i) so long as the Trading Manager
acts as a trading manager for the Partnership, neither the Trading Manager nor
any of its principals or affiliates shall hold knowingly any position or control
any other account which would cause the Partnership, the Trading Manager, or the
principals or affiliates of the Trading Manager to be in violation of the
Commodity Exchange Act or any regulations promulgated thereunder, any applicable
rule or regulation of the CFTC or any other regulatory body, exchange, or board;
and (ii) neither the Trading Manager nor any of its principals or affiliates
shall render futures interests trading advice to any other individual or entity
or otherwise engage in activity which shall knowingly cause positions in futures
interests to be attributed to the Trading Manager under the rules or regulations
of the CFTC or any other regulatory body, exchange, or board so as to require
the significant modification of positions taken or intended for the account of
the Partnership; provided that the Trading Manager may modify its trading
systems, methods or strategies to accommodate the trading of additional funds or
accounts. If applicable speculative position limits are exceeded by the Trading
Manager in the opinion of (i) independent counsel (who shall be other than
counsel to the Partnership), (ii) the CFTC, or (iii) any other regulatory body,
exchange, or board, the Trading Manager and its principals and affiliates shall
promptly liquidate positions in all of their accounts, including the
Partnership's account, as to which positions are attributed to the Trading
Manager as nearly as possible in proportion to the account's respective amounts
available for trading (taking into account different degrees of leverage and
"notional" equity) to the extent necessary to comply with the applicable
position limits.
10. Representations, Warranties, and
Covenants of the Trading Manager.
--------------------------------
(a) Representations of the Trading Manager. The Trading
Manager with respect to itself and each of its principals represents and
warrants to and agrees with the General Partner and the Partnership as follows:
(i) It will exercise good faith and due care in using
the trading programs on behalf of the Partnership that are described in the
Prospectus (as modified from time to time) or any other trading programs agreed
to by the General Partner.
(ii) The Trading Manager shall follow, at all times,
the Trading Policies of the Partnership (as described in the Prospectus) and as
amended in writing and furnished to the Trading Manager from time to time.
(iii) The Trading Manager shall trade: (A) the
Partnership's Net Assets pursuant to the same trading programs described in the
Prospectus unless the General Partner agrees otherwise and (B) only in futures
and option contracts traded on U.S. contract markets, foreign currency forward
contracts traded with DWR, and such commodity interests which are approved in
writing by the General Partner.
(iv) The Trading Manager is duly organized, validly
existing and in good standing as a corporation under the laws of the state of
its incorporation and is qualified to do business as a foreign corporation and
in good standing in each other jurisdiction in which the nature or conduct of
its business requires such qualification and the failure to so qualify would
materially adversely affect the Trading Manager's ability to perform its duties
under this Agreement. The Trading Manager has full corporate power and authority
to perform its obligations under this Agreement, and as described in the
Registration Statement and Prospectus. The only principals (as defined in Rule
4.10(e) under the Commodity Exchange Act) of the Trading Manager are those set
forth in the Prospectus (the "Trading Manager Principals").
(v) All references to the Trading Manager and each
Trading Manager Principal, including the Trading Manager's trading approaches,
systems, and performance, in the Registration Statement and the Prospectus, are
accurate and complete in all material respects. With respect to the material
relating to the Trading Manager and each Trading Manager Principal, including
the Trading Manager's and the Trading Manager Principals' trading approaches,
systems, and performance information, as applicable, (i) the Registration
Statement and Prospectus contain all statements and information required to be
included therein under the Commodity Exchange Act, (ii) the Registration
Statement as of its effective date will not contain any misleading or untrue
statement of a material fact or omit to state a material fact which is required
to be stated therein or necessary to make the statements therein not misleading
and (iii) the Prospectus at its date of issue and as of each closing will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(vi) This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Trading Manager and is a
valid and binding agreement of the Trading Manager enforceable in accordance
with its terms.
(vii) Each of the Trading Manager and each
"principal" of the Trading Manager, as defined in Rule 3.1 under the Commodity
Exchange Act, has all federal and state governmental, regulatory and exchange
licenses and approvals and has effected all filings and registrations with
federal and state governmental and regulatory agencies required to conduct its
or his business and to act as described in the Registration Statement and
Prospectus or required to perform its or his obligations under this Agreement.
The Trading Manager is registered as a commodity trading advisor under the
Commodity Exchange Act and is a member of the NFA in such capacity.
(viii) The execution and delivery of this Agreement,
the incurrence of the obligations set forth herein, the consummation of the
transactions contemplated herein and in the Prospectus and the payment of the
fees hereunder will not violate, or constitute a breach of, or default under,
the certificate of incorporation or bylaws of the Trading Manager or any
agreement or instrument by which it is bound or of any order, rule, law or
regulation binding on it of any court or any governmental body or administrative
agency or panel or self-regulatory organization having jurisdiction over it.
(ix) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
may otherwise be stated in or contemplated by the Registration Statement and the
Prospectus, there has not been any material adverse change in the condition,
financial or otherwise, business or prospects of the Trading Manager or any
Trading Manager Principal except for subsequent performance as to which no
representation is made.
(x) Except as set forth in the Registration Statement
or Prospectus there has not been in the five years preceding the date of the
Prospectus and there is not pending, or to the best of the Trading Manager's
knowledge threatened, any action, suit or proceeding before or by any court or
other governmental body to which the Trading Manager or any Trading Manager
Principal is or was a party, or to which any of the assets of the Trading
Manager is or was subject and which resulted in or might reasonably be expected
to result in any material adverse change in the condition, financial or
otherwise, business or prospects of the Trading Manager or which would be
material to an investor's decision to invest in the Partnership. None of the
Trading Manager or any Trading Manager Principal has received any notice of an
investigation by the NFA or the CFTC regarding noncompliance by the Trading
Manager or any of the Trading Manager Principals with the Commodity Exchange
Act.
(xi) Neither the Trading Manager nor any Trading
Manager Principal has received, or is entitled to receive, directly or
indirectly, any commission, finder's fee, similar fee, or rebate from any person
in connection with the organization or operation of the Partnership, other than
as described in the Prospectus.
(xii) The actual performance of each discretionary
account of a client directed by the Trading Manager and the Trading Manager
Principals since at least the later of (i) the date of commencement of trading
for each such account or (ii) a date five years prior to the effective date of
the Registration Statement, is disclosed in the Prospectus (other than such
discretionary accounts the performance of which are exempt from Commodity
Exchange Act disclosure requirements); all of the information regarding the
actual performance of the accounts of the Trading Manager and the Trading
Manager Principals set forth in the Prospectus is complete and accurate in all
material respects and is in accordance with and in compliance with the
disclosure requirements under the Commodity Exchange Act and the Securities Act
in all material respects, including the Division of Trading and Markets
"notional equity" advisories and interpretations and the rules and regulations
of the NFA.
(xiii) The information relating to the Trading
Manager in the Customer Brochure is factually accurate.
(b) Covenants of the Trading Manager. The Trading Manager
covenants and agrees that:
(i) The Trading Manager shall use its best efforts
to maintain all registrations and memberships necessary for the Trading Manager
to continue to act as described herein and to at all times comply in all
material respects with all applicable laws, rules, and regulations, to the
extent that the failure to so comply would have a materially adverse effect on
the Trading Manager's ability to act as described herein.
(ii) The Trading Manager shall inform the General
Partner immediately as soon as the Trading Manager or any of its principals
becomes the subject of any investigation, claim or proceeding of any regulatory
authority having jurisdiction over such person materially affecting the business
of the Trading Manager or becomes a named party to any litigation materially
affecting the business of the Trading Manager. The Trading Manager shall also
inform the General Partner immediately if the Trading Manager or any of its
officers becomes aware of any breach of this Agreement by the Trading Manager.
(iii) The Trading Manager agrees reasonably to
cooperate by providing information regarding itself and its performance in the
preparation of any amendments or supplements to the Registration Statement and
the Prospectus.
11. Representations and Warranties of the
General Partner and the Partnership.
-------------------------------------
The General Partner and the Partnership represent and warrant
to the Trading Manager, as follows:
(i) The Partnership has provided to the Trading
Manager, and filed with the Securities and Exchange Commission (the "SEC"), the
Registration Statement and has filed copies thereof with: (i) the CFTC under the
Commodity Exchange Act and the rules and regulations promulgated thereunder
(collectively, the "Commodity Act"); (ii) the NASD pursuant to its Rules of Fair
Practice; and (iii) the NFA in accordance with NFA Compliance Rule 2-13. The
Partnership will not file any amendment to the Registration Statement or any
amendment or supplement to the Prospectus unless the Trading Manager has
received reasonable prior notice of and a copy of such amendments or supplements
and has not reasonably objected thereto in writing.
(ii) The Limited Partnership Agreement provides for
the subscription for and sale of the Units; all action required to be taken by
the General Partner and the Partnership as a condition to the sale of the Units
to qualified subscribers therefor has been, or prior to each Closing as defined
in the Prospectus have been taken; and, upon payment of the consideration
therefor specified in each accepted Subscription Agreement and Power of Attorney
or Exchange Agreement and Power of Attorney, as applicable, in such forms are
attached to the Prospectus (except as otherwise specified herein, the term
"Subscription Agreement and Power of Attorney" shall also mean the Exchange
Agreement and Power of Attorney in case of subscribers executing same), the
Units will constitute valid limited partnership interests in the Partnership.
(iii) The Partnership is a limited partnership duly
organized pursuant to the Certificate of Limited Partnership, the Limited
Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act
("DRULPA") and is validly existing under the laws of the State of Delaware with
full power and authority to engage in the trading of futures interests and to
engage in its other contemplated activities as described in the Prospectus; the
Partnership has received a certificate of authority to do business in the State
of New York as provided by Article 8-A of the New York Revised Limited
Partnership Act and is qualified to do business in each jurisdiction in which
the nature or conduct of its business requires such qualification and where
failure to be so qualified could materially adversely affect the Partnership's
ability to perform its obligations hereunder.
(iv) The General Partner is duly organized and
validly existing and in good standing as a corporation under the laws of the
State of Delaware and in good standing and qualified to do business as a foreign
corporation under the laws of the State of New York and is qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature or conduct of its business requires such qualification and
where the failure to be so qualified could materially adversely affect the
General Partner's ability to perform its obligations hereunder.
(v) The Partnership and the General Partner have
full partnership or corporate power and authority under applicable law to
conduct their business and to perform their respective obligations under this
Agreement.
(vi) The Registration Statement and Prospectus
contain all statements and information required to be included therein by the
Commodity Act. When the Registration Statement becomes effective under the 1933
Act and at all times subsequent thereto up to and including each Closing, the
Registration Statement and Prospectus will comply in all material respects with
the requirements of the 1933 Act, the SEC Regulations, the rules of the NFA and
the Commodity Act and CFTC Regulations. The Registration Statement as of its
effective date will not contain any misleading or untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus as of its date of
issue and at each Closing will not contain any misleading or untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading. The supplemental sales literature, when read in
conjunction with the Prospectus, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading. The supplemental sales literature will comply with the Commodity
Act and the regulations and rules of the NFA and NASD. This representation and
warranty shall not, however, apply to any statement or omission in the
Registration Statement, Prospectus or supplemental sales literature made in
reliance upon and in conformity with information furnished for use therein by
and relating to the Trading Manager, its trading methods or its trading
performance.
(vii) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been any material adverse change in the condition, financial or otherwise,
business or prospects of the General Partner or the Partnership, whether or not
arising in the ordinary course of business.
(viii) This Agreement has been duly and validly
authorized, executed and delivered by the General Partner on behalf of the
Partnership and the General Partner and constitutes a valid, binding and
enforceable agreement of the Partnership and the General Partner in accordance
with its terms.
(ix) The execution and delivery of this Agreement,
the incurrence of the obligations set forth therein and the consummation of the
transactions contemplated therein and in the Registration Statement and
Prospectus will not violate, or constitute a breach of, or default under, the
General Partner's certificate of incorporation, bylaws, the Certificate of
Limited Partnership, or the Limited Partnership Agreement or any agreement or
instrument by which either the General Partner or the Partnership, as the case
may be, is bound or any order, rule, law or regulation applicable to the General
Partner or the Partnership of any court or any governmental body or
administrative agency or panel or self-regulatory organization having
jurisdiction over the General Partner or the Partnership.
(x) Except as set forth in the Registration
Statement or Prospectus, there has not been in the five years preceding the date
of the Prospectus and there is not pending or, to the best of the General
Partner's knowledge, threatened, any action, suit or proceeding at law or in
equity before or by any court or by any federal, state, municipal or other
governmental body or any administrative, self-regulatory or commodity exchange
organization to which the General Partner or the Partnership is or was a party,
or to which any of the assets of the General Partner or the Partnership is or
was subject; and neither the General Partner nor any of the principals of the
General Partner, as "principals" is defined under Rule 4.10 under the Commodity
Act ("General Partner Principals") has received any notice of an investigation
by the NFA, NASD, SEC or CFTC regarding non-compliance by the General Partner or
the General Partner Principals or the Partnership with the Commodity Act or the
1933 Act which is material to an investor's decision to invest in the
Partnership.
(xi) The General Partner and each principal of the
General Partner, as defined in Rule 3.1 under the Commodity Act, have all
federal and state governmental, regulatory and exchange approvals and licenses,
and have effected all filings and registrations with federal and state and
foreign governmental agencies required to conduct their business and to act as
described in the Registration Statement and Prospectus or required to perform
their obligations under this Agreement (including, without limitation,
registration as a commodity pool operator under the Commodity Act and membership
in the NFA as a commodity pool operator) and will maintain all such required
approvals, licenses, filings and registrations for the term of this Agreement.
The General Partner's principals identified in the Registration Statement are
all of the General Partner Principals.
(b) Covenants of the General Partner. The General Partner
covenants and agrees that:
(i) The General Partner shall use its best efforts
to maintain all registrations and memberships necessary for the General Partner
to continue to act as described herein and in the Prospectus and to all times
comply in all material respects with all applicable laws, rules, and
regulations, to the extent that the failure to so comply would have a materially
adverse effect on the General Partner's ability to act as described herein and
in the Prospectus.
(ii) The General Partner shall inform the Trading
Manager immediately as soon as the General Partner or any of its principals
becomes the subject of any investigation, claim, or proceeding of any regulatory
authority having jurisdiction over such person or becomes a named party to any
litigation materially affecting the business of the General Partner. The General
Partner shall also inform the Trading Manager immediately if the General Partner
or any of its officers become aware of any breach of this Agreement by the
General Partner.
(iii) The Partnership will furnish to the Trading
Manager copies of the Registration Statement, the Prospectus, and all amendments
and supplements thereto, in each case as soon as available.
12. Merger or Transfer of Assets of Trading
Manager.
---------------------------------------
The Trading Manager may merge or consolidate with, or sell or
otherwise transfer its advisory business, or all or a substantial portion of its
assets, any portion of its commodity trading systems or methods, or its
goodwill, to any entity that is directly or indirectly controlled by,
controlling, or under common control with, the Trading Manager, provided that
such entity expressly assumes all obligations of the Trading Manager under this
Agreement and agrees to continue to operate the business of the Trading Manager,
substantially as such business is being conducted on the date hereof.
13. Complete Agreement.
-------------------
This Agreement constitutes the entire agreement between the
parties with respect to the matters referred to herein, and no other agreement,
verbal or otherwise, shall be binding as between the parties unless in writing
and signed by the party against whom enforcement is sought.
14. Assignment.
-----------
This Agreement may not be assigned by any party hereto without
the express written consent of the other parties hereto.
15. Amendment.
----------
This Agreement may not be amended except by the written
consent of the parties hereto.
16. Severability.
-------------
The invalidity or unenforceability of any provision of this
Agreement or any covenant herein contained shall not affect the validity or
enforceability of any other provision or covenant hereof or herein contained and
any such invalid provision or covenant shall be deemed to be severable.
17. Closing Certificates and Opinions.
----------------------------------
(1) The Trading Manager shall, at the Partnership's Initial
Closing and at the request of the General Partner at any Monthly Closing (as
defined in the Prospectus), provide the following:
(a) To DWR, the General Partner and the Partnership a
certificate, dated the date of any such closing and in form and substance
satisfactory to such parties, to the effect that:
(i) The representations and warranties by the
Trading Manager in this Agreement are true, accurate, and complete on and as of
the date of the closing, as if made on the date of the closing.
(ii) The Trading Manager has performed all of its
obligations and satisfied all of the conditions on its part to be performed or
satisfied under this Agreement, at or prior to the date of such closing.
(b) To DWR, the General Partner and the Partnership an
opinion of counsel to the Trading Manager, in form and substance satisfactory to
such parties, to the effect that:
(i) The Trading Manager is a corporation duly
organized and validly existing under the laws of the state of its incorporation
and is qualified to do business and in good standing in each other jurisdiction
in which the nature or conduct of its business requires such qualification and
the failure to be duly qualified would materially adversely affect the Trading
Manager's ability to perform its obligations under this Agreement. The Trading
Manager has full corporate power and authority to conduct its business as
described in the Registration Statement and Prospectus and to perform its
obligations under this Agreement.
(ii) The Trading Manager (including the Trading
Manager Principals) has all governmental, regulatory, self-regulatory and
commodity exchange and clearing association licenses and memberships required by
law, and the Trading Manager (including the Trading Manager Principals) has
received or made all filings and registrations necessary to perform its
obligations under this Agreement and to conduct its business as described in the
Registration Statement and Prospectus, except for such licenses, memberships,
filings and registrations, the absence of which would not have a material
adverse effect on its ability to act as described in the Registration Statement
and Prospectus or to perform its obligations under such agreements, and, to the
best of such counsel's knowledge, after due investigations, none of such
licenses, memberships or registrations have been rescinded, revoked or
suspended.
(iii) This Agreement has been duly authorized,
executed and delivered by or on behalf of the Trading Manager and constitutes a
valid and binding agreement of the Trading Manager enforceable in accordance
with its terms, subject only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the enforceability
generally of rights of creditors and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law), and except as enforceability of the indemnification, exculpation, and
contribution provisions contained in such agreements may be limited by
applicable law or public policy.
(iv) Based upon due inquiry of certain officers of
the Trading Manager, to the best of such counsel's knowledge, except as
disclosed in the Prospectus, there are no material actions, claims or
proceedings known to such counsel either threatened or pending in any court or
before or by any governmental or administrative body nor have there been any
such actions, claims or proceedings at any time within the five years preceding
the date of the Prospectus against the Trading Manager or any Trading Manager
Principal which are required to be disclosed in the Registration Statement or
Prospectus.
(v) The execution and delivery of this Agreement,
the incurrence of the obligations herein set forth and the consummation of the
transactions contemplated herein and in the Prospectus will not be in
contravention of any of the provisions of the certificate of incorporation or
bylaws of the Trading Manager and, based upon due inquiry of certain officers of
the Trading Manager, to the best of such counsel's knowledge, will not
constitute a breach of, or default under, or a violation of any instrument or
agreement known to such counsel by which the Trading Manager is bound and will
not violate any order, law, rule or regulation applicable to the Trading Manager
of any court or any governmental body or administrative agency or panel or
self-regulatory organization having jurisdiction over the Trading Manager.
(vi) Based upon reliance of certain SEC No-Action
letters, as of the closing the performance by the Trading Manager of the
transactions contemplated by this Agreement and as described in the Prospectus
will not require the Trading Manager to be registered as an "investment adviser"
as that term is defined in the Investment Advisers Act of 1940, as amended.
(vii) Nothing has come to such counsel's attention
that would lead them to believe that, (A) the Registration Statement at the time
it became effective, insofar as the Trading Manager and the Trading Manager
Principals are concerned, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (b) the Prospectus at the time it
was issued or at the closing contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein relating to the Trading Manager or the Trading Manager Principals, in
light of the circumstances under which they were made, not misleading; provided,
however, that such counsel need express no opinion or belief as to the
performance data and notes or descriptions thereto set forth in the Registration
Statement and Prospectus, except that such counsel shall opine, without
rendering any opinion as to the accuracy of the information in such tables, that
the actual performance tables of the Trading Manager set forth in the Prospectus
comply as to format in all material respects with applicable CFTC rules and all
CFTC and NFA interpretations thereof, except as disclosed in the Prospectus.
In giving the foregoing opinion, counsel may rely on
information obtained from public officials, officers of the Trading Manager, and
other resources believed by it to be responsible and may assume that signatures
on all documents examined by it are genuine.
(c) To DWR, the General Partner and the Partnership, a
report dated the date of the closing which shall present, for the period from
the date after the last day covered by the historical performance records in the
Prospectus to the latest practicable day before closing, figures which shall be
a continuation of such historical performance records and which shall certify
that such figures are, to the best of such Trading Manager's knowledge, accurate
in all material respects.
(2) The General Partner shall, at the Partnership's Initial
Closing and at the request of the Trading Manager at any Monthly Closing (as
defined in the Prospectus), provide the following:
(a) To the Trading Manager a certificate, dated the date
of such closing and in form and substance satisfactory to the Trading Manager,
to the effect that:
(i) The representations and warranties by the
Partnership and the General Partner in this Agreement are true, accurate, and
complete on and as of the date of the closing as if made on the date of the
closing.
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued by the SEC and no proceedings for
that purpose have been instituted or are pending or, to the knowledge of the
General Partner, are contemplated or threatened under the 1933 Act. No order
preventing or suspending the use of the Prospectus has been issued by the SEC,
NASD, CFTC, or NFA and no proceedings for that purpose have been instituted or
are pending or, to the knowledge of the General Partner, are contemplated or
threatened under the 1933 Act or the Commodity Act.
(iii) The Partnership and the General Partner have
performed all of their obligations and satisfied all of the conditions on their
part to be performed or satisfied under this Agreement at or prior to the date
of the closing.
(b) Cadwalader, Wickersham & Taft, counsel to the
General Partner and the Partnership, shall deliver its opinion to the parties
hereto at the Initial Closing, in form and substance satisfactory to the parties
hereto, to the effect that:
(i) The Partnership is a limited partnership duly
formed pursuant to the Certificate of Limited Partnership, the Limited
Partnership Agreement and the DRULPA and is validly existing under the laws of
the State of Delaware with full partnership power and authority to conduct the
business in which it proposes to engage as described in the Registration
Statement and Prospectus and to perform its obligations under this Agreement;
the Partnership has received a Certificate of Authority as contemplated under
the New York Revised Limited Partnership Act and is qualified to do business in
New York and need not affect any other filings or qualifications under the laws
of any other jurisdictions to conduct its business as described in the
Registration Statement and Prospectus.
(ii) The General Partner is duly organized and
validly existing and in good standing as a corporation under the laws of the
State of Delaware with full corporate power and authority to act as general
partner of the Partnership and is qualified to do business and is in good
standing as a foreign corporation in the State of New York and in each other
jurisdiction in which the nature or conduct of its business requires such
qualification and the failure to so qualify might reasonably be expected to
result in material adverse consequences to the Partnership or the General
Partner's ability to perform its obligations as described in the Registration
Statement and Prospectus. The General Partner has full corporate power and
authority to conduct its business as described in the Registration Statement and
Prospectus and to perform its obligations under this Agreement.
(iii) The General Partner and each of its principals
as defined in Rule 3.1 under the Commodity Act, and the Partnership have all
federal and state governmental and regulatory licenses and memberships required
by law and have received or made all filings and registrations necessary in
order for the General Partner and the Partnership to perform their obligations
under this Agreement, to conduct their business as described in the Registration
Statement and Prospectus, except for such licenses, memberships, filings, and
registrations, the absence of which would not have a material adverse effect on
their ability to act as described in the Registration Statement and Prospectus,
or to perform their obligations under this Agreement, and, to the best of such
counsel's knowledge, after due investigation, none of such licenses and
memberships or registrations have been rescinded, revoked or suspended.
(iv) This Agreement has been duly authorized,
executed and delivered by or on behalf of the General Partner and the
Partnership, and constitutes a valid and binding agreement of the General
Partner and the Partnership, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium or similar laws at the
time in effect affecting the enforceability generally of rights of creditors and
by general principles of equity (regardless or whether such enforceability is
considered in a proceeding in equity or at law), and except as enforceability of
indemnification, exculpation and contribution provisions contained in such
agreements may be limited by applicable law or public policy.
(v) The execution and delivery of this Agreement and
the offer and sale of the Units by the Partnership and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions contemplated herein and therein and in the Prospectus will not be
in contravention of the General Partner's certificate of incorporation or
bylaws, the Certificate of Limited Partnership, or the Limited Partnership
Agreement and, to the best of such counsel's knowledge based upon due inquiry of
certain officers of the General Partner, will not constitute a breach of, or
default under, or a violation of any agreement or instrument known to such
counsel by which the General Partner or the Partnership is bound and will not
violate any order, law, rule or regulation applicable to the General Partner or
the Partnership of any court or any governmental body or administrative agency
or panel or self-regulatory organization having jurisdiction over the General
Partner or the Partnership.
(vi) To the best of such counsel's knowledge, based
upon due inquiry of certain officers of the General Partner, there are no
actions, claims or proceedings pending or threatened in any court or before or
by any governmental or administrative body, nor have there been any such suits,
claims or proceedings within the five years preceding the date of the
Prospectus, to which the General Partner, any General Partner Principal, or the
Partnership is or was a party, or to which any of their assets is or was
subject, which would be material to an investor's decision to invest in the
Partnership or which might reasonably be expected to materially adversely affect
the condition, financial or otherwise, or business of the General Partner, or
the Partnership, whether or not arising in the ordinary course of business, or
impair their ability to discharge their obligations as described in the
Prospectus.
(vii) The Registration Statement is effective under
the 1933 Act and, to the best of such counsel's knowledge, no proceedings for a
stop order are pending or threatened under Section 8(d) of the 1933 Act or any
similar state securities laws.
(viii) At the time the Registration Statement became
effective, the Registration Statement, and at the time the Prospectus was issued
and as of the closing, the Prospectus, complied as to form in all material
respects with the requirements of the 1933 Act, the Securities Regulations, the
Commodity Act and the regulations of the NFA and NASD. Nothing has come to such
counsel's attention that would lead them to believe that the Registration
Statement at the time it became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus at the time it was issued or at the closing contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
where made, not misleading; provided, however, that Cadwalader, Wicksherman &
Taft need express no opinion or belief (a) as to information in the Registration
Statement or the Prospectus regarding any Trading Manager or its principals, or
(b) as to the financial statements, notes thereto and other financial or
statistical data set forth in the Registration Statement and Prospectus, or (c)
as to the performance data and notes or descriptions thereto set forth in the
Registration Statement and Prospectus.
(ix) Based upon reliance on certain SEC No-Action
letters, as of the closing, the Partnership need not register as an "investment
company" under the Investment Company Act of 1940, as amended.
In rendering its opinion, such counsel may rely on
information obtained from public officials, officers of the General Partner and
other sources believed by it to be responsible and may assume that signatures on
all documents examined by it are genuine, and that a Subscription Agreement and
Power of Attorney in the forms referred to in the Prospectus have been duly
authorized, completed, dated, executed, and delivered and funds representing the
full subscription price for the Units purchased have been delivered by each
purchaser of Units in accordance with the requirements set forth in the
Prospectus.
18. Inconsistent Filings.
---------------------
The Trading Manager agrees not to file, participate in the
filing of, or publish any description of the Trading Manager, or of its
respective principals or trading approaches that is materially inconsistent with
those in the Registration Statement and Prospectus, without so informing the
General Partner and furnishing to it copies of all such filings within a
reasonable period prior to the date of filing or publication. No such
description shall be published or filed to which the General Partner reasonably
objects, except as otherwise required by law or regulation.
19. Disclosure Documents.
---------------------
(a) During the term of this Agreement, the Trading
Manager shall furnish to the General Partner promptly copies of all disclosure
documents filed with the CFTC or NFA by the Trading Manager. The General Partner
acknowledges receipt of the Trading Manager's disclosure document dated June 30,
1994.
(b) The General Partner and the Partnership will not
distribute or supplement any promotional material relating to the Trading
Manager unless the Trading Manager has received reasonable prior notice of and a
copy of such promotional material and has not reasonably objected thereto in
writing.
(c) The Partnership, the General Partner and their
respective affiliates acknowledge that the Trading Manager's strategies and
trades constitute proprietary data belonging to the Trading Manager and agree
that they will not disseminate any confidential information regarding any of the
foregoing, except as required by law, and any such information as may be
acquired by the General Partner, the Partnership or their respective affiliates
is to be used solely to monitor the Trading Manager's performance on behalf of
the Partnership.
20. Notices.
All notices required to be delivered under this Agreement
shall be in writing and shall be effective upon actual receipt when delivered
personally, by facsimile, air courier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows (or to such other
address as the party entitled to notice shall hereafter designate in accordance
with the terms hereof):
if to the Partnership:
Dean Witter Spectrum Strategic L.P.
c/o Demeter Management Corporation
2 World Trade Center
62nd Floor
New York, New York 10048
if to the General Partner:
Demeter Management Corporation
2 World Trade Center
62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
if to the Trading Manager:
Willowbridge Associates Inc.
315 Enterprise Drive
Suite 102
Plainsboro, New Jersey 08536
Attn: Theresa C. Morris
21. Survival.
---------
The provisions of this Agreement shall survive the termination
of this Agreement with respect to any matter arising while this Agreement was in
effect.
22. Governing Law.
--------------
This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York. If any action or proceeding
shall be brought by a party to this Agreement or to enforce any right or remedy
under this Agreement, each party hereto hereby consents and will submit to the
jurisdiction of the courts of the State of New York or any Federal court sitting
in the County, City and State of New York. Any action or proceeding brought by
any party to this Agreement to enforce any right, assert any claim or obtain any
relief whatsoever in connection with this Agreement shall be brought by such
party exclusively in the courts of the State of New York or any Federal court
sitting in the County, City and State of New York.
23. Remedies.
---------
In any action or proceeding arising out of any of the
provisions of this Agreement, the Trading Manager agrees not to seek any
prejudgment equitable or ancillary relief. The Trading Manager agrees that its
sole remedy in any such action or proceeding shall be to seek actual monetary
damages for any breach of this Agreement.
24. Headings.
---------
Headings to sections herein are for the convenience of the
parties only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.
DEAN WITTER SPECTRUM STRATEGIC L.P.
by Demeter Management Corporation,
General Partner
By /s/ Mark J. Hawley
------------------------------
DEMETER MANAGEMENT CORPORATION
By /s/ Mark J. Hawley
------------------------------
WILLOWBRIDGE ASSOCIATES INC.
By /s/ Theresa C. Morris
------------------------------
EXHIBIT 10.03
AMENDED AND RESTATED CUSTOMER AGREEMENT
THIS AMENDED AND RESTATED CUSTOMER AGREEMENT (this
"Agreement"), made as of the 1st day of December, 1997, by and between DEAN
WITTER SPECTRUM STRATEGIC L.P., a Delaware limited partnership (the "Customer"),
and DEAN WITTER REYNOLDS INC., a Delaware corporation ("DWR");
W I T N E S S E T H :
WHEREAS, the Customer was organized pursuant to a Certificate
of Limited Partnership filed in the office of the Secretary of State of the
State of Delaware on April 29, 1994, and a Limited Partnership Agreement dated
as of May 27, 1994, as amended, between Demeter Management Corporation, a
Delaware corporation ("Demeter"), acting as general partner (in such capacity,
the "General Partner"), and the limited partners of the Customer to trade, buy,
sell, spread or otherwise acquire, hold, or dispose of commodities (including,
but not limited, to foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, and any other securities or items which are,
or may become, the subject of futures contract trading), domestic and foreign
commodity futures contracts, commodity forward contracts, foreign exchange
commitments, options on physical commodities and on futures contracts, spot
(cash) commodities and currencies, and any rights pertaining thereto
(hereinafter referred to collectively as "futures interests") and securities
(such as United States Treasury bills) approved by the Commodity Futures Trading
Commission (the "CFTC") for investment of customer funds and other securities on
a limited basis, and to engage in all activities incident thereto;
WHEREAS, the Customer (which is a commodity pool) and the
General Partner (which is a registered commodity pool operator) have entered
into management agreements (the "Management Agreements") with certain trading
advisors (each, a "Trading Advisor" and collectively, the "Trading Advisors"),
which provide that the Trading Advisors have authority and responsibility,
except in certain limited situations, to direct the investment and reinvestment
of the assets of the Customer in futures interests under the terms set forth in
the Management Agreements;
WHEREAS, the Customer and DWR entered into that certain
Amended and Restated Customer Agreement dated as of September 1, 1996 (the
"Customer Agreement"), whereby DWR agreed to perform futures interests brokerage
and certain other services for the Customer; and
WHEREAS, the Customer and DWR wish to amend and restate the
Customer Agreement to set forth the terms and conditions upon which DWR will
continue to perform certain non-clearing futures interests brokerage and certain
other services for the Customer;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not defined herein shall
have the meaning given to them in the Customer's most recent prospectus as filed
with the Securities and Exchange Commission (the "Prospectus") relating to the
offering of units of limited partnership interest of the Customer (the "Units")
and in any amendment or supplement to the Prospectus.
2. Duties of DWR. DWR agrees to act as a non-clearing
commodity broker for the Customer and introduce the Customer's account to Carr
Futures, Inc. ("CFI") for execution and clearing of futures interests
transactions on behalf of the Customer in accordance with instructions provided
by the Trading Advisors, and the Customer agrees to retain DWR as a non-clearing
commodity broker for the term of this Agreement.
DWR agrees to furnish to the Customer as soon as practicable
all of the information from time to time in its possession which Demeter, as the
general partner of the Customer, is required to furnish to the Limited Partners
pursuant to the Limited Partnership Agreement as from time to time in effect and
as required by applicable law, rules, or regulations and to perform such other
services for the Customer as are set forth herein and in the Prospectus.
3. Obligations and Expenses. Except as otherwise set forth
herein and in the Prospectus, the Customer, and not DWR, shall be responsible
for all taxes, management and incentive fees to the Trading Advisors, brokerage
fees to DWR, and all extraordinary expenses incurred by it. DWR shall pay all of
the organizational, initial and continuing offering, and ordinary administrative
expenses of the Customer (including, but not limited to, legal, accounting, and
auditing fees, printing costs, filing fees, escrow fees, marketing costs and
expenses and other related expenses) and all charges of CFI for executing and
clearing the Customer's futures interests trades (as described in paragraph 5
below), and shall not be reimbursed therefor.
4. Agreement Nonexclusive. DWR shall be free to render
services of the nature to be rendered to the Customer hereunder to other persons
or entities in addition to the Customer, and the parties acknowledge that DWR
may render such services to additional entities similar in nature to the
Customer, including other partnerships organized with Demeter as their general
partner. It is expressly understood and agreed that this Agreement is
nonexclusive and that the Customer has no obligation to execute any or all of
its trades for futures interests through DWR. The parties acknowledge that the
Customer may utilize such other broker or brokers as Demeter may direct from
time to time. The Customer's utilization of an additional commodity broker shall
neither terminate this Agreement nor modify in any regard the respective rights
and obligations of the Customer and DWR hereunder.
5. Compensation of DWR. The Customer will pay brokerage fees
to DWR at a monthly flat-rate. The Customer will pay to DWR a monthly flat-rate
fee of 1/12 of 7.25% of the Customer's Net Assets (a 7.25% annual rate) as of
the first day of each month. DWR will receive such brokerage fees irrespective
of the number of trades executed on the Customer's behalf.
DWR will pay, from brokerage fees received by it, all charges
of CFI for executing and clearing trades for the Customer, including floor
brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give up" fees, any
taxes (other than income taxes), any third party clearing costs incurred by CFI,
costs associated with taking delivery of futures interests, and fees for
execution of forward contract transactions.
From time to time, DWR may increase or decrease brokerage fees
to be charged to the Customer; provided, however, that: (i) notice of such
increase is mailed to each Limited Partner at least five business days prior to
the last date on which a "Request for Redemption" must be received by the
General Partner with respect to the applicable Redemption Date; and (ii) such
notice shall describe the redemption and voting rights of Limited Partners.
Notwithstanding the foregoing, the Customer's expenses are
subject to the following limits: (a) if the Customer were to pay roundturn
brokerage commissions, the brokerage commissions (excluding transaction fees and
costs) payable by the Customer to DWR shall not exceed 80% of DWR's published
non-member rates for speculative accounts and (b) the aggregate of (i) brokerage
commissions (or fees) payable to DWR, (ii) transaction fees and costs payable by
the Customer, and (iii) net excess interest and compensating balance benefits to
DWR (after crediting the Customer with interest as described in the Prospectus)
shall not exceed 14% annually of the Customer's average month-end Net Assets
during each calendar year.
6. Investment Discretion. The parties recognize that DWR shall
have no authority to direct the futures interests investments to be made for the
Customer's account. However, the parties agree that DWR, and not the Trading
Advisors, shall have the authority and responsibility with regard to the
investment, maintenance, and management of the Customer's assets that are held
in segregated or secured accounts, as provided in Section 7 hereof.
7. Investment of Customer Funds. The Customer shall deposit
its assets in accounts with DWR. The Customer's assets deposited with DWR will
be segregated or secured in accordance with the Commodity Exchange Act and CFTC
regulations. DWR will credit the Customer with interest income at month-end at
the rate earned by DWR on its U.S. Treasury Bill investments with customer
segregated funds as if 80% of the Customer's average daily Net Assets for the
month were invested in U.S. Treasury Bills. All of such funds will be available
for margin for the Customer's trading. For the purpose of such interest
payments, Net Assets will not include monies due to the Customer on or with
respect to forward contracts and other futures interests but not actually
received by it from banks, brokers, dealers and other persons. The Customer
understands that it will not receive any other interest income on its assets and
that Broker will receive interest income from CFI, as agreed from time to time
by Broker and CFI, on the Customer's assets deposited as margin with CFI. The
Customer's funds will either be invested along with other customer segregated
and secured funds of DWR or held in non-interest bearing bank accounts. The
Customer's assets held by DWR may be used solely as margin for the Customer's
trading.
Ownership of the right to receive interest on the Customer's
assets pursuant to the preceding paragraph shall be reflected and maintained and
may be transferred only on the books and records of DWR. Any purported transfer
of such ownership shall not be effective or recognized until such transfer shall
have been recorded on the books and records of DWR.
8. Standard of Liability and Indemnity. Subject to Section 2
hereof, DWR and its affiliates (as defined below) shall not be liable to the
Customer, the General Partner or Limited Partners, or any of its or their
respective successors or assigns, for any act, omission, conduct, or activity
undertaken by or on behalf of the Customer pursuant to this Agreement which DWR
determines, in good faith, to be in the best interests of the Customer, unless
such act, omission, conduct, or activity by DWR or its affiliates constituted
misconduct or negligence.
The Customer shall indemnify, defend and hold harmless DWR and
its affiliates from and against any loss, liability, damage, cost or expense
(including attorneys' and accountants' fees and expenses incurred in the defense
of any demands, claims, or lawsuits) actually and reasonably incurred arising
from any act, omission, conduct or activity undertaken by DWR on behalf of the
Customer pursuant to this Agreement, including, without limitation, any demands,
claims or lawsuits initiated by a Limited Partner (or assignee thereof),
provided that (i) DWR has determined, in good faith, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was in the
best interests of the Customer, and (ii) the act, omission, conduct, or activity
that was the basis for such loss, liability, damage, cost, or expense was not
the result of misconduct or negligence. Notwithstanding anything to the contrary
contained in the foregoing, neither DWR nor any of its affiliates shall be
indemnified by the Customer for any losses, liabilities, or expenses arising
from or out of an alleged violation of federal or state securities laws unless
(a) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(b) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (c) a court of
competent jurisdiction approves a settlement of the claims against the
particular indemnitee and finds that indemnification of the settlement and
related costs should be made, provided, with regard to such court approval, the
indemnitee must apprise the court of the position of the SEC, and the positions
of the respective securities administrators of Massachusetts, Missouri,
Tennessee and/or those other states and jurisdictions in which the plaintiffs
claim they were offered or sold Units, with respect to indemnification for
securities laws violations before seeking court approval for indemnification.
Furthermore, in any action or proceeding brought by a Limited Partner in the
right of the Customer to which DWR or any affiliate thereof is a party
defendant, any such person shall be indemnified only to the extent and subject
to the conditions specified in this Section 8. The Customer shall make advances
to DWR or its affiliates hereunder only if: (i) the demand, claim, lawsuit, or
legal action relates to the performance of duties or services by such persons to
the Customer; (ii) such demand, claim, lawsuit, or legal action is not initiated
by a Limited Partner; and (iii) such advances are repaid, with interest at the
legal rate under Delaware law, if the person receiving such advance is
ultimately found not to be entitled to indemnification hereunder.
DWR shall indemnify, defend and hold harmless the Customer and
its successors or assigns from and against any losses, liabilities, damages,
costs, or expenses (including in connection with the defense or settlement of
claims; provided DWR has approved such settlement) incurred as a result of the
activities of DWR or its affiliates, provided, further, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was the result
of bad faith, misconduct or negligence.
The indemnities provided in this Section 8 by the Customer to
DWR and its affiliates shall be inapplicable in the event of any losses,
liabilities, damages, costs, or expenses arising out of, or based upon, any
material breach of any warranty, covenant, or agreement of DWR contained in this
Agreement to the extent caused by such breach. Likewise, the indemnities
provided in this Section 8 by DWR to the Customer and any of its successors and
assigns shall be inapplicable in the event of any losses, liabilities, damages,
costs, or expenses arising out of, or based upon, any material breach of any
warranty, covenant, or agreement of the Customer contained in this Agreement to
the extent caused by such breach.
As used in this Section 8, the term "affiliate" of DWR shall
mean: (i) any natural person, partnership, corporation, association, or other
legal entity directly or indirectly owning, controlling, or holding with power
to vote 10% or more of the outstanding voting securities of DWR; (ii) any
partnership, corporation, association, or other legal entity 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote by DWR; (iii) any natural person,
partnership, corporation, association, or other legal entity directly or
indirectly controlling, controlled by, or under common control with, DWR; or
(iv) any officer or director of DWR. Notwithstanding the foregoing, "affiliates"
for purposes of this Section 8 shall include only those persons acting on behalf
of DWR within the scope of the authority of DWR, as set forth in this Agreement.
9. Term. This Agreement shall continue in effect until
terminated by either party giving not less than 60 days' prior written notice of
termination to the other party. Any such termination by either party shall be
without penalty.
10. Complete Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the matters referred to herein,
and no other agreement, verbal or otherwise, shall be binding as between the
parties unless in writing and signed by the party against whom enforcement is
sought.
11. Assignment. This Agreement may not be assigned by either
party without the express written consent of the other party.
12. Amendment. This Agreement may not be amended except by the
written consent of the parties and provided such amendment is consistent with
the Prospectus.
13. Notices. All notices required or desired to be delivered
under this Agreement shall be in writing and shall be effective when delivered
personally on the day delivered, or when given by registered or certified mail,
postage prepaid, return receipt requested, on the day of receipt, addressed as
follows (or to such other address as the party entitled to notice shall
hereafter designate in accordance with the terms hereof):
if to the Customer:
DEAN WITTER SPECTRUM STRATEGIC L.P.
c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
President
if to DWR:
DEAN WITTER REYNOLDS INC.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
Executive Vice President
14. Survival. The provisions of this Agreement shall survive
the termination of this Agreement with respect to any matter arising while this
Agreement was in effect.
15. Headings. Headings of Sections herein are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
16. Incorporation by Reference. The Futures Customer Agreement
annexed hereto is hereby incorporated by reference herein and made a part hereof
to the same extent as if such document were set forth in full herein. If any
provision of this Agreement is or at any time becomes inconsistent with the
annexed document, the terms of this Agreement shall control.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.
DEAN WITTER SPECTRUM STRATEGIC L.P.
By: Demeter Management Corporation,
General Partner
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
President
DEAN WITTER REYNOLDS INC.
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
Executive Vice President
<PAGE>
Futures Customer Agreement
In consideration of the acceptance by Dean Witter Reynolds Inc. ("DWR") of one
or more accounts of the undersigned ("Customer") (if more than one account is
carried by DWR, all are covered by this Agreement and are referred to
collectively as the "Account") and DWR's agreement to act as Customer's broker
for the execution, clearance and/or carrying of transactions for the purchase
and sale of commodity interests, including commodities, commodity futures
contracts and commodity options, Customer agrees as follows:
1. APPLICABLE RULES AND REGULATIONS - The Account and each transaction
therein shall be subject to the terms of this Agreement and to (a) all
applicable laws and the regulations, rules and orders (collectively
"regulations") of all regulatory and self-regulatory organizations
having jurisdiction and (b) the constitution, by-laws, rules,
regulations, orders, resolutions, interpretations and customs and
usages (collectively "rules") of the market and any associated clearing
organization (each an "exchange") on or subject to the rules of which
such transaction is executed and/or cleared. The reference in the
preceding sentence to exchange rules is solely for DWR's protection and
DWR's failure to comply therewith shall not constitute a breach of this
Agreement or relieve Customer of any obligation or responsibility under
this Agreement. DWR shall not be liable to Customer as a result of any
action by DWR, its officers, directors, employees or agents to comply
with any rule or regulation.
2. PAYMENTS TO DWR - Customer agrees to pay to DWR immediately on request
(a) commissions, fees and service charges as are in effect from time to
time together with all applicable regulatory and self-regulatory
organization and exchange fees, charges and taxes; (b) the amount of
any debit balance or any other liability that may result from
transactions executed for the account; and (c) interest on such debit
balance or liability at the prevailing rate charged by DWR at the time
such debit balance or liability arises and service charges on any such
debit balance or liability together with any reasonable costs and
attorney's fees incurred in collecting any such debit balance or
liability. Customer acknowledges that DWR may charge commissions at
other rates to other customers.
3. CUSTOMER'S DUTY TO MAINTAIN ADEQUATE MARGIN - Customer shall at all
times and without prior notice or demand from DWR maintain adequate
margins in the account so as continually to meet the original and
maintenance margin requirements established by DWR for Customer. DWR
may change such requirements from time to time at DWR's discretion.
Such margin requirements may exceed the margin requirements set by any
exchange or other regulatory authority and may vary from DWR's
requirements for other customers. Customer agrees, when so requested,
immediately to wire transfer margin funds and to furnish DWR with names
of bank officers for immediate verification of such transfers. Customer
acknowledges and agrees that DWR may receive and retain as its own any
interest, increment, profit, gain or benefit directly or indirectly,
accruing from any of the funds DWR receives from Customer.
4. DELIVERY; OPTION EXERCISE
(a) Customer acknowledges that the making or accepting of delivery
pursuant to a futures contract may involve a much higher
degree of risk than liquidating a position by offset. DWR has
no control over and makes no warranty with respect to grade,
quality or tolerances of any commodity delivered in
fulfillment of a contract.
(b) Customer agrees to give DWR timely notice and immediately on
request to inform DWR if Customer intends to make or take
delivery under a futures contract or to exercise an option
contract. If so requested, Customer shall provide DWR with
satisfactory assurances that Customer can fulfill Customer's
obligation to make or take delivery under any contract.
Customer shall furnish DWR with property deliverable by it
under any contract in accordance with DWR's instructions.
(c) DWR shall not have any obligation to exercise any long option
contract unless Customer has furnished DWR with timely
exercise instructions and sufficient initial margin with
respect to each underlying futures contract.
5. FOREIGN CURRENCY - If DWR enters into any transaction for Customer
effected in a currency other than U.S. dollars: (a) any profit or loss
caused by changes in the rate of exchange for such currency shall be
for Customer's account and risk and (b) unless another currency is
designated in DWR's confirmation of such transaction, all margin for
such transaction and the profit or loss on the liquidation of such
transaction shall be in U.S. dollars at a rate of exchange determined
by DWR in its discretion on the basis of then prevailing market rates
of exchange for such foreign currency.
6. DWR MAY LIMIT POSITIONS HELD - Customer agrees that DWR, at its
discretion, may limit the number of open positions (net or gross) which
Customer may execute, clear and/or carry with or acquire through it.
Customer agrees (a) not to make any trade which would have the effect
of exceeding such limits, (b) that DWR may require Customer to reduce
open positions carried with DWR and (c) that DWR may refuse to accept
orders to establish new positions. DWR may impose and enforce such
limits, reduction or refusal whether or not they are required by
applicable law, regulations or rules. Customer shall comply with all
position limits established by any regulatory or self-regulatory
organization or any exchange. In addition, Customer agrees to notify
DWR promptly if customer is required to file position reports with any
regulatory or self-regulatory organization or with any exchange.
7. NO WARRANTY AS TO INFORMATION OR RECOMMENDATION - Customer acknowledges
that:
(a) Any market recommendations and information DWR may communicate
to Customer, although based upon information obtained from
sources believed by DWR to be reliable, may be incomplete and
not subject to verification;
(b) DWR makes no representation, warranty or guarantee as to, and
shall not be responsible for, the accuracy or completeness of
any information or trading recommendation furnished to
Customer;
(c) recommendations to Customer as to any particular transaction
at any given time may differ among DWR's personnel due to
diversity in analysis of fundamental and technical factors and
may vary from any standard recommendation made by DWR in its
market letters or otherwise; and
(d) DWR has no obligation or responsibility to update any market
recommendations or information it communicates to Customer.
Customer understands that DWR and its officers, directors,
affiliates, stockholders, representatives or associated persons may have
positions in and may intend to buy or sell commodity interests which are the
subject of market recommendations furnished to Customer, and that the market
positions of DWR or any such officer, director, affiliate, stockholder,
representative or associated person may or may not be consistent with the
recommendations furnished to Customer by DWR.
8. LIMITS ON DWR DUTIES; LIABILITY - Customer agrees:
(a) that DWR has no duty to apprise Customer of news or of the
value of any commodity interests or collateral pledged or in
any way to advise Customer with respect to the market;
(b) that the commissions which DWR receives are consideration
solely for the execution, reporting and carrying of Customer's
trades;
(c) that if Customer has authorized any third party or parties to
place orders or effect transactions on behalf of Customer in
any Account, each such party has been selected by Customer
based on its own evaluation and assessment of such party and
that such party is solely the agent of Customer, and if any
such party allocates commodity interests among its customers,
Customer has reviewed each such party's commodity interest
allocation system, has satisfied itself that such allocation
system is fair and will seek recovery solely from such party
to recover any damages sustained by Customer as the result of
any allocation made by such party; and
(d) to waive any and all claims, rights or causes of action which
Customer has or may have against DWR or its officers,
employees and agents (i) arising in whole or in part, directly
or indirectly, out of any act or omission of any person,
whether or not legally deemed an agent of DWR, who refers or
introduces Customer to DWR or places orders for Customer and
(ii) for any punitive damages and to limit any claims arising
out of this Agreement or the Account to Customer's direct
out-of-pocket damages.
9. EXTRAORDINARY EVENTS - Customer shall have no claim against DWR for any
loss, damage, liability, cost, charge, expense, penalty, fine or tax
caused directly or indirectly by (a) governmental, court, exchange,
regulatory or self-regulatory organization restrictions, regulations,
rules, decisions or orders, (b) suspension or termination of trading,
(c) war or civil or labor disturbance, (d) delay or inaccuracy in the
transmission or reporting of orders due to a breakdown or failure of
computer services, transmission or communication facilities, (e) the
failure or delay by any exchange to enforce its rules or to pay to DWR
any margin due in respect of Customer's Account, (f) the failure or
delay by any bank, trust company, clearing organization or other person
which, pursuant to applicable exchange rules, is holding Customer
funds, securities or other property to pay or deliver the same to DWR
or (g) any other cause or causes beyond DWR's control.
10. INDEMNIFICATION OF DWR - Customer agrees to indemnify, defend and hold
harmless DWR and its officers, employees and agents from and against
any loss, cost, claim, damage (including any consequential cost, loss
or damage), liability or expense (including reasonable attorneys' fees)
and any fine, sanction or penalty made or imposed by any regulatory or
self-regulatory authority or any exchange as the result, directly or
indirectly, of:
(a) Customer's failure or refusal to comply with any provision of
this Agreement or perform any obligation on its part to be
performed pursuant to this Agreement; and
(b) Customer's failure to timely deliver any security, commodity
or other property previously sold by DWR on Customer's behalf.
11 NOTICES; TRANSMITTALS - DWR shall transmit all communications to
Customer at Customer's address, telefax or telephone number set forth
in the accompanying Futures Account Application or to such other
address as Customer may hereafter direct in writing. Customer shall
transmit all communications to DWR (except routine inquiries concerning
the Account) to 130 Liberty Street, New York, NY 10006, Attention:
Futures Compliance Officer. All payments and deliveries to DWR shall be
made as instructed by DWR from time to time and shall be deemed
received only when actually received by DWR.
12. CONFIRMATION CONCLUSIVE - Confirmation of trades and any other notices
sent to Customer shall be conclusive and binding on Customer unless
Customer or Customer's agent notifies DWR to the contrary (a) in the
case of an oral report, orally at the time received by Customer or its
agent or (b) in the case of a written report or notice, in writing
prior to opening of trading on the business day next following receipt
of the report. In addition, if Customer has not received a written
confirmation that a commodity interest transaction has been executed
within three business days after Customer has placed an order with DWR
to effect such transaction, and has been informed or believes that such
order has been or should have been executed, then Customer immediately
shall notify DWR thereof. Absent such notice, Customer conclusively
shall be deemed estopped to object and to have waived any such
objection to the failure to execute or cause to be executed such
transaction. Anything in this Section 12 withstanding, neither Customer
nor DWR shall be bound by any transaction or price reported in error.
13. SECURITY INTEREST - All money and property ("collateral") now or at any
future time held in Customer's Account, or otherwise held by DWR for
Customer, is subject to a security interest in DWR's favor to secure
any indebtedness at any time owing to it by Customer. DWR, in its
discretion, may liquidate any collateral to satisfy any margin or
Account deficiencies or to transfer the collateral to the general
ledger account of DWR.
14. TRANSFER OF FUNDS - At any time and from time to time and without prior
notice to Customer, DWR may transfer from one account to another
account in which Customer has any interest, such excess funds,
equities, securities or other property as in DWR's judgment may be
required for margin, or to reduce any debit balance or to reduce or
satisfy any deficits in such other accounts except that no such
transfer may be made from a segregated account subject to the Commodity
Exchange Act to another account maintained by Customer unless either
Customer has authorized such transfer in writing or DWR is effecting
such transfer to enforce DWR's security interest pursuant to Section
13. DWR promptly shall confirm all transfers of funds made pursuant
hereto to Customer in writing.
15. DWR'S RIGHT TO LIQUIDATE CUSTOMER POSITIONS - In addition to all other
rights of DWR set forth in this Agreement:
(a) when directed or required by a regulatory or self-regulatory
organization or exchange having jurisdiction over DWR or the
Account;
(b) whenever, in its discretion, DWR considers it necessary for
its protection because of margin requirements or otherwise;
(c) if Customer or any affiliate of Customer repudiates, violates,
breaches or fails to perform on a timely basis any term,
covenant or condition on its part to be performed under this
Agreement or another agreement with DWR;
(d) if a case in bankruptcy is commenced or if a proceeding under
any insolvency or other law for the protection of creditors or
for the appointment of a receiver, liquidator, trustee,
conservator, custodian or similar officer is filed by or
against Customer or any affiliate of Customer, or if Customer
or any affiliate of Customer makes or proposes to make any
arrangement or composition for the benefit of its creditors,
or if Customer (or any such affiliate) or any or all of its
property is subject to any agreement, order, judgment or
decree providing for Customer's dissolution, winding-up,
liquidation, merger, consolidation, reorganization or for the
appointment of a receiver, liquidator, trustee, conservator,
custodian or similar officer of Customer, such affiliate or
such property;
(e) DWR is informed of Customer's death or mental incapacity; or
(f) if an attachment or similar order is levied against the
Account or any other account maintained by Customer or any
affiliate of Customer with DWR;
DWR shall have the right to (i) satisfy any obligations due DWR out of
any Customer's property in DWR's custody or control, (ii) liquidate any
or all of Customer's commodity interest positions, (iii) cancel any or
all of Customer's outstanding orders, (iv) treat any or all of
Customer's obligations due DWR as immediately due and payable, (v) sell
any or all of Customer's property in DWR's custody or control in such
manner as DWR determines to be commercially reasonable, and/or (vi)
terminate any or all of DWR's obligations for future performance to
Customer, all without any notice to or demand on Customer. Any sale
hereunder may be made in any commercially reasonable manner. Customer
agrees that a prior demand, call or notice shall not be considered a
waiver of DWR's right to act without demand or notice as herein
provided, that Customer shall at all times be liable for the payment of
any debit balance owing in each account upon demand whether occurring
upon a liquidation as provided under this Section 15 or otherwise under
this Agreement, and that in all cases Customer shall be liable for any
deficiency remaining in each Account in the event of liquidation
thereof in whole or in part together with interest thereon and all
costs relating to liquidation and collection (including reasonable
attorneys' fees).
16. CUSTOMER REPRESENTATIONS, WARRANTIES AND AGREEMENTS - Customer
represents and warrants to and agrees with DWR that:
(a) Customer has full power and authority to enter into this
Agreement and to engage in the transactions and perform its
obligations hereunder and contemplated hereby and (i) if a
corporation or a limited liability company, is duly organized
under the laws of the jurisdiction set forth in the
accompanying Futures Account Application, or (ii) if a
partnership, is duly organized pursuant to a written
partnership agreement and the general partner executing this
Agreement is duly authorized to do so under the partnership
agreement;
(b) Neither Customer nor any partner, director, officer, member,
manager or employee of Customer nor any affiliate of Customer
is a partner, director, officer, member, manager or employee
of a futures commission merchant introducing broker, exchange
or self-regulatory organization or an employee or commissioner
of the Commodity Futures Trading Commission (the "CFTC"),
except as previously disclosed in writing to DWR;
(c) The accompanying Futures Account Application and Personal
Financial Statements, if applicable, (including any financial
statements furnished in connection therewith) are true,
correct and complete. Except as disclosed on the accompanying
Futures Account Application or otherwise provided in writing,
(i) Customer is not a commodity pool or is exempt from
registration under the rules of the Commission, and (ii)
Customer is acting solely as principal and no one other than
Customer has any interest in any Account of Customer. Customer
hereby authorizes DWR to contact such banks, financial
institutions and credit agencies as DWR shall deem appropriate
for verification of the information contained herein.
(d) Customer has determined that trading in commodity interests is
appropriate for Customer, is prudent in all respects and does
not and will not violate Customer's charter or by-laws (or
other comparable governing document) or any law, rule,
regulation, judgment, decree, order or agreement to which
Customer or its property is subject or bound;
(e) As required by CFTC regulations, Customer shall create, retain
and produce upon request of the applicable contract market,
the CFTC or the United States Department of Justice documents
(such as contracts, confirmations, telex printouts, invoices
and documents of title) with respect to cash transactions
underlying exchanges of futures for cash commodities or
exchange of futures in connection with cash commodity
transactions;
(f) Customer consents to the electronic recording, at DWR's
discretion, of any or all telephone conversations with DWR
(without automatic tone warning device), the use of same as
evidence by either party in any action or proceeding arising
out of the Agreement and in DWR's erasure, at its discretion,
of any recording as part of its regular procedure for handling
of recordings;
(g) Absent a separate written agreement between Customer and DWR
with respect to give-ups, DWR, in its discretion, may, but
shall have no obligation to, accept from other brokers
commodity interest transactions executed by such brokers on an
exchange for Customer and proposed to be "given-up" to DWR for
clearance and/or carrying in the Account;
(h) DWR, for and on behalf of Customer, is authorized and
empowered to place orders for commodity interest transactions
through one or more electronic or automated trading systems
maintained or operated by or under the auspices of an
exchange, that DWR shall not be liable or obligated to
Customer for any loss, damage, liability, cost or expense
(including but not limited to loss of profits, loss of use,
incidental or consequential damages) incurred or sustained by
Customer and arising in whole or in part, directly or
indirectly, from any fault, delay, omission, inaccuracy or
termination of a system or DWR's inability to enter, cancel or
modify an order on behalf of Customer on or through a system.
The provisions of this Section 16(h) shall apply regardless of
whether any customer claim arises in contract, negligence,
tort, strict liability, breach of fiduciary obligations or
otherwise; and
(i) If Customer is subject to the Financial Institution Reform,
Recovery and Enforcement Act of 1989, the certified
resolutions set forth following this Agreement have been
caused to be reflected in the minutes of Customer's Board of
Directors (or other comparable governing body) and this
Agreement is and shall be, continuously from the date hereof,
an official record of Customer.
Customer agrees to promptly notify DWR in writing if any of the
warranties and representations contained in this Section 16 becomes
inaccurate or in any way ceases to be true, complete and correct.
17. SUCCESSORS AND ASSIGNS - This Agreement shall inure to the benefit of
DWR, its successors and assigns, and shall be binding upon Customer and
Customer's executors, trustees, administrators, successors and assigns,
provided, however, that this Agreement is not assignable by Customer
without the prior written consent of DWR.
18. MODIFICATION OF AGREEMENT BY DWR; NON-WAIVER PROVISION - This Agreement
may only be altered, modified or amended by mutual written consent of
the parties, except that if DWR notifies Customer of a change in this
Agreement and Customer thereafter effects a commodity interest
transaction in an account, Customer agrees that such action by Customer
will constitute consent by Customer to such change. No employee of DWR
other than DWR's General Counsel or his or her designee, has any
authority to alter, modify, amend or waive in any respect any of the
terms of this Agreement. The rights and remedies conferred upon DWR
shall be cumulative, and its forbearance to take any remedial action
available to it under this Agreement shall not waive its right at any
time or from time to time thereafter to take such action.
19. SEVERABILITY - If any term or provision hereof or the application
thereof to any persons or circumstances shall to any extent be contrary
to any exchange, government or self-regulatory regulation or contrary
to any federal, state or local law or otherwise be invalid or
unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those as
to which it is contrary, invalid or unenforceable, shall not be
affected thereby.
20. CAPTIONS - All captions used herein are for convenience only, are not a
part of this Agreement, and are not to be used in construing or
interpreting any aspect of this Agreement.
21. TERMINATION - This Agreement shall continue in force until written
notice of termination is given by Customer or DWR. Termination shall
not relieve either party of any liability or obligation incurred prior
to such notice. Upon giving or receiving notice of termination,
Customer will promptly take all action necessary to transfer all open
positions in each account to another futures commission merchant.
22. ENTIRE AGREEMENT - This Agreement constitutes the entire agreement
between Customer and DWR with respect to the subject matter hereof and
supersedes any prior agreements between the parties with respect to
such subject matter.
23. GOVERNING LAW; CONSENT TO JURISDICTION -
(a) In case of a dispute between Customer and DWR arising out of
or relating to the making or performance of this Agreement or
any transaction pursuant to this Agreement (i) this Agreement
and its enforcement shall be governed by the laws of the State
of New York without regard to principles of conflicts of laws,
and (ii) Customer will bring any legal proceeding against DWR
in, and Customer hereby consents in any legal proceeding by
DWR to the jurisdiction of, any state or federal court located
within the State and City of New York in connection with all
legal proceedings arising directly, indirectly or otherwise in
connection with, out of, related to or from Customer's
Account, transactions contemplated by this Agreement or the
breach thereof. Customer hereby waives all objections
Customer, at any time, may have as to the propriety of the
court in which any such legal proceedings may be commenced.
Customer also agrees that any service of process mailed to
Customer at any address specified to DWR shall be deemed a
proper service of process on the undersigned.
(b) Notwithstanding the provisions of Section 23 (a)(ii), Customer
may elect at this time to have all disputes described in this
Section resolved by arbitration. To make such election,
Customer must sign the Arbitration Agreement set forth in
Section 24. Notwithstanding such election, any question
relating to whether Customer or DWR has commenced an
arbitration proceeding in a timely manner, whether a dispute
is within the scope of the Arbitration Agreement or whether a
party (other than Customer or DWR) has consented to
arbitration and all proceedings to compel arbitration shall be
determined by a court as specified in Section 23 (a)(ii).
24. ARBITRATION AGREEMENT (OPTIONAL) - Every dispute between Customer and
DWR arising out of or relating to the making or performance of this
Agreement or any transaction pursuant to this Agreement, shall be
settled by arbitration in accordance with the rules, then in effect, of
the National Futures Association, the contract market upon which the
transaction giving rise to the claim was executed, or the National
Association of Securities Dealers as Customer may elect. If Customer
does not make such election by registered mail addressed to DWR at 130
Liberty Street, 29th Floor, New York, NY 10006; Attention: Deputy
General Counsel, within 45 days after demand by DWR that the Customer
make such election, then DWR may make such election. DWR agrees to pay
any incremental fees which may be assessed by a qualified forum for
making available a "mixed panel" of arbitrators, unless the arbitrators
determine that Customer has acted in bad faith in initiating or
conducting the proceedings. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
IN ADDITION TO FOREIGN FORUMS, THREE FORUMS EXIST FOR THE RESOLUTION OF
COMMODITY DISPUTES: CIVIL COURT LITIGATION, REPARATIONS AT THE
COMMODITY FUTURES TRADING COMMISSION ("CFTC") AND ARBITRATION CONDUCTED
BY A SELF-REGULATORY OR OTHER PRIVATE ORGANIZATION.
THE CFTC RECOGNIZES THAT THE OPPORTUNITY TO SETTLE DISPUTES BY
ARBITRATION MAY IN SOME CASES PROVIDE MANY BENEFITS TO CUSTOMERS,
INCLUDING THE ABILITY TO OBTAIN AN EXPEDITIOUS AND FINAL RESOLUTION OF
DISPUTES WITHOUT INCURRING SUBSTANTIAL COSTS. THE CFTC REQUIRES,
HOWEVER, THAT EACH CUSTOMER INDIVIDUALLY EXAMINE THE RELATIVE MERITS OF
ARBITRATION AND THAT YOUR CONSENT TO THIS ARBITRATION AGREEMENT BE
VOLUNTARY.
BY SIGNING THIS AGREEMENT, YOU (1) MAY BE WAIVING YOUR RIGHT TO SUE IN
A COURT OF LAW AND (2) ARE AGREEING TO BE BOUND BY ARBITRATION OF ANY
CLAIMS OR COUNTERCLAIMS WHICH YOU OR DWR MAY SUBMIT TO ARBITRATION
UNDER THIS AGREEMENT. YOU ARE NOT, HOWEVER, WAIVING YOUR RIGHT TO ELECT
INSTEAD TO PETITION THE CFTC TO INSTITUTE REPARATIONS PROCEEDINGS UNDER
SECTION 14 OF THE COMMODITY EXCHANGE ACT WITH RESPECT TO ANY DISPUTE
WHICH MAY BE ARBITRATED PURSUANT TO THIS AGREEMENT. IN THE EVENT A
DISPUTE ARISES, YOU WILL BE NOTIFIED IF DWR INTENDS TO SUBMIT THE
DISPUTE TO ARBITRATION. IF YOU BELIEVE A VIOLATION OF THE COMMODITY
EXCHANGE ACT IS INVOLVED AND IF YOU PREFER TO REQUEST A SECTION 14
"REPARATIONS" PROCEEDINGS BEFORE THE CFTC, YOU WILL HAVE 45 DAYS FROM
THE DATE OF SUCH NOTICE IN WHICH TO MAKE THAT ELECTION.
YOU NEED NOT AGREE TO THIS ARBITRATION AGREEMENT TO OPEN AN ACCOUNT
WITH DWR. See 17 CFR 180.1-180.5. ACCEPTANCE OF THIS ARBITRATION
AGREEMENT REQUIRES A SEPARATE SIGNATURE ON PAGE 8.
25. CONSENT TO TAKE THE OTHER SIDE OF ORDERS (OPTIONAL) - Without its prior
notice, Customer agrees that when DWR executes sell or buy orders on
Customer's behalf, DWR, its directors, officers, employees, agents,
affiliates, and any floor broker may take the other side of Customer's
transaction through any account of such person subject to its being
executed at prevailing prices in accordance with and subject to the
limitations and conditions, if any, contained in applicable rules and
regulations.
26. AUTHORIZATION TO TRANSFER FUNDS (OPTIONAL) - Without limiting other
provisions herein, DWR is authorized to transfer from any segregated
account subject to the Commodity Exchange Act carried by DWR for the
Customer to any other account carried by DWR for the Customer such
amount of excess funds as in DWR's judgment may be necessary at any
time to avoid a margin call or to reduce a debit balance in said
account. It is understood that DWR will confirm in writing each such
transfer of funds made pursuant to this authorization within a
reasonable time after such transfer.
27. SUBORDINATION AGREEMENT (Applies only to Accounts with funds held in
foreign countries) - Funds of customers trading on United States
contract markets may be held in accounts denominated in a foreign
currency with depositories located outside the United States or its
territories if the customer is domiciled in a foreign country or if the
funds are held in connection with contracts priced and settled in a
foreign currency. Such accounts are subject to the risk that events
could occur which hinder or prevent the availability of these funds for
distribution to customers. Such accounts also may be subject to foreign
currency exchange rate risks.
If authorized below, Customer authorizes the deposit of funds into such
foreign depositories. For customers domiciled in the United States,
this authorization permits the holding of funds in regulated accounts
offshore only if such funds are used to margin, guarantee, or secure
positions in such contracts or accrue as a result of such positions. In
order to avoid the possible dilution of other customer funds, a
customer who has funds held outside the United States agrees by
accepting this subordination agreement that his claims based on such
funds will be subordinated as described below in the unlikely event
both of the following conditions are met: (1) DWR is placed in
receivership or bankruptcy, and (2) there are insufficient funds
available for distribution denominated in the foreign currency as to
which the customer has a claim to satisfy all claims against those
funds.
By initialing the Subordination Agreement below, Customer agrees that
if both of the conditions listed above occur, its claim against DWR's
assets attributable to funds held overseas in a particular foreign
currency may be satisfied out of segregated customer funds held in
accounts denominated in dollars or other foreign currencies only after
each customer whose funds are held in dollars or in such other foreign
currencies receives its pro-rata portion of such funds. It is further
agreed that in no event may a customer whose funds are held overseas
receive more than its pro-rata share of the aggregate pool consisting
of funds held in dollars, funds held in the particular foreign
currency, and non-segregated assets of DWR.
<PAGE>
OPTIONAL ELECTIONS
The following provisions, which are set forth in this agreement, need not be
entered into to open the Account. Customer agrees that its optional elections
are as follows:
Signature required for each
election
ARBITRATION AGREEMENT:
(Agreement Paragraph 24)
---------------------------------
CONSENT TO TAKE THE OTHER SIDE OF ORDERS:
(Agreement Paragraph 25) X /s/ Mark J. Hawley
---------------------------------
AUTHORIZATION TO TRANSFER FUNDS:
(Agreement Paragraph 26)
---------------------------------
ACKNOWLEDGEMENT TO SUBORDINATION AGREEMENT
(Agreement Paragraph 27) X /s/ Mark J. Hawley
---------------------------------
(Required for accounts holding
non-U.S. currency)
- --------------------------------------------------------------------------------
HEDGE ELECTION
Customer confirms that all transactions in the Account will represent bona
fide hedging transactions, as defined by the Commodity Futures Trading
Commission, unless DWR is notified otherwise not later than the time an
order is placed for the Account [check box if applicable]: / /
Pursuant to CFTC Regulation 190.06(d), Customer specifies and agrees, with
respect to hedging transactions in the Account, that in the unlikely event of
DWR's bankruptcy, it prefers that the bankruptcy trustee [check appropriate
box]:
A. Liquidate all open contracts without first seeking instructions either
from or on behalf of Customer. / /
B. Attempt to obtain instructions with respect to the disposition of all
open contracts. (If neither box is checked, Customer shall be deemed
to elect A) / /
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENT OF RECEIPT OF RISK DISCLOSURE STATEMENTS
The undersigned each hereby acknowledges its separate receipt from DWR, and its
understanding of each of the following documents prior to the opening of the
account:
<TABLE>
<CAPTION>
<S> <C>
o. Risk Disclosure Statement for Futures and Options (in the o. Project A(TM) Customer Information Statement
form prescribed by CFTC Regulation 1.55(c))
o. LME Risk Warning Notice o. Questions & Answers on Flexible Options Trading at the
CBOT
o. Dean Witter Order Presumption for After Hours Electronic o. CME Average Pricing System Disclosure Statement
Markets
o. NYMEX ACCESS(SM) Risk Disclosure Statement o. Special Notice to Foreign Brokers and Foreign Traders
o. Globex(R) Customer Information and Risk Disclosure Statement
</TABLE>
- --------------------------------------------------------------------------------
REQUIRED SIGNATURES
The undersigned has received, read, understands and agrees to all the provisions
of this Agreement and the separate risk disclosure statements enumerated above
and agrees to promptly notify DWR in writing if any of the warranties and
representations contained herein become inaccurate or in any way cease to be
true, complete and correct.
DEAN WITTER SPECTRUM STRATEGIC L.P.
- --------------------------------------------------------------------------------
CUSTOMER NAME(S)
By: DEMETER MANAGEMENT CORPORATION
By: /s/ Mark J. Hawley December 1, 1997
- ------------------------------------- --------------------------------------
AUTHORIZED SIGNATURE(S) DATE
Mark J. Hawley, President
- --------------------------------------------------------------------------------
(If applicable, print name and title of signatory)
EXHIBIT 10.04
CUSTOMER AGREEMENT
THIS CUSTOMER AGREEMENT (this "Agreement"), made as of the 1st
day of December, 1997, by and among DEAN WITTER SPECTRUM STRATEGIC L.P., a
Delaware limited partnership (the "Customer"), CARR FUTURES INC., a Delaware
corporation ("CFI"), and DEAN WITTER REYNOLDS INC., a Delaware corporation
("DWR");
W I T N E S S E T H :
WHEREAS, the Customer was organized pursuant to a Certificate
of Limited Partnership filed in the office of the Secretary of State of the
State of Delaware on April 29, 1994, and a Limited Partnership Agreement dated
as of May 27, 1994 between Demeter Management Corporation, a Delaware
corporation ("Demeter"), acting as general partner (in such capacity, the
"General Partner"), and the limited partners of the Customer, to trade, buy,
sell, spread, or otherwise acquire, hold, or dispose of commodities (including,
but not limited to, foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, and any other securities or items which are,
or may become, the subject of futures contract trading), domestic and foreign
commodity futures contracts, commodity forward contracts, foreign exchange
commitments, options on physical commodities and on futures contracts, spot
(cash) commodities and currencies, and any rights pertaining thereto
(hereinafter referred to collectively as "futures interests"), and securities
(such as United States Treasury bills) approved by the Commodity Futures Trading
Commission (the "CFTC") for investment of customer funds and other securities on
a limited basis, and to engage in all activities incident thereto;
WHEREAS, the Customer (which is a commodity pool) and the
General Partner (which is a registered commodity pool operator) have entered
into management agreements (the "Management Agreements") with certain trading
advisors (each, a "Trading Advisor" and collectively, the "Trading Advisors"),
which provide that the Trading Advisors have authority and responsibility,
except in certain limited situations, to direct the investment and reinvestment
of the assets of the Customer in futures interests under the terms set forth in
the Management Agreements;
WHEREAS, the Customer and DWR have entered into that certain
Amended and Restated Customer Agreement, dated as of December 1, 1997 (the "DWR
Customer Agreement"), whereby DWR agreed to perform certain non-clearing futures
interests brokerage and other services for the Customer; and
WHEREAS, the Customer, DWR and CFI wish to enter into this
Agreement to set forth the terms and conditions upon which CFI will perform
futures interests execution and clearing services for the Customer;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not defined herein shall
have the meaning given to them in the Customer's most recent prospectus as filed
with the Securities and Exchange Commission (the "Prospectus") relating to the
offering of units of limited partnership interest of the Customer (the "Units")
and in any amendment or supplement to the Prospectus.
2. Duties of CFI. CFI agrees to execute and clear all futures
interests brokerage transactions on behalf of the Customer in accordance with
instructions provided by DWR or the Trading Advisors, and the Customer agrees to
retain CFI as its clearing broker for the term of this Agreement. CFI agrees to
maintain such number of subaccounts for the Customer as DWR reasonably shall
request. The execution and clearing services of CFI provided hereunder shall be
in accordance with applicable exchange rules.
CFI agrees to furnish to the Customer as soon as practicable
all of the information from time to time in its possession which Demeter, as the
general partner of the Customer, is required to furnish to the Limited Partners
pursuant to the Limited Partnership Agreement as from time to time in effect and
as required by applicable law, rules, or regulations and to perform such other
services for the Customer as are set forth herein and in the Prospectus. CFI
shall disclose such information (including, without limitation, financial
statements) regarding itself and its affiliates as may be required by the
Customer for SEC, CFTC and state blue sky disclosure purposes.
CFI agrees to notify the applicable Trading Advisor and DWR
immediately upon discovery of any error committed by CFI or any of its agents
with respect to a trade executed or cleared by CFI on behalf of the Customer and
to notify DWR promptly of any order or trade for the Customer's account which
CFI believes was not executed or cleared in accordance with proper instructions
given by DWR, Demeter or any Trading Advisor or other agent for the Customer's
account. Notwithstanding any provision of this Agreement to the contrary, CFI
shall assume financial responsibility for any errors committed or caused by it
in executing or clearing orders for the purchase or sale of futures interests
for the Customer's account and shall credit the Customer's account with any
profit resulting from an error of CFI. Errors made by floor brokers appointed or
selected by CFI shall constitute errors made by CFI. However, CFI shall not be
responsible for errors committed by the Trading Advisors.
CFI acknowledges that other partnerships of which the General
Partner is the general partner are not affiliates of the Customer.
3. Margins. The futures and futures option trades for the
Customer's account shall be margined at the applicable exchange or clearinghouse
minimum rates for speculative accounts; all subaccounts shall be combined for
determining such margin requirements. All margin calls for the Customer's
account shall be made to DWR by CFI, and each such call for margin shall be met
by Customer within three hours after DWR has received such call. CFI shall
accept as margin for the Customer's account any instrument deemed acceptable
under exchange or clearinghouse rules pertaining to such account. Upon oral or
written request by DWR, CFI shall, within three hours after receipt of any such
request, wire transfer (by federal bank wire system) to DWR for Customer's
account any funds in the Customer's account with CFI in excess of the margin
requirements for such account.
4. Obligations and Expenses. Except as otherwise set forth
herein and in the Prospectus, the Customer, and not CFI, shall be responsible
for all taxes, management and incentive fees to the Trading Advisors, the
brokerage fees to DWR pursuant to the DWR Customer Agreement, and all
extraordinary expenses incurred by it. DWR shall pay all of the organizational,
initial and continuing offering, and ordinary administrative expenses of the
Customer (including, but not limited to, legal, accounting, and auditing fees,
printing costs, filing fees, escrow fees, marketing costs and expenses, and
other related expenses), and all charges of CFI (as described in paragraph 6
below), and shall not be reimbursed therefor.
5. Agreement Nonexclusive. CFI shall be free to render
services of the nature to be rendered to the Customer hereunder to other persons
or entities in addition to the Customer, and the parties acknowledge that CFI
may render such services to additional entities similar in nature to the
Customer, including other partnerships organized with Demeter as their general
partner. It is expressly understood and agreed that this Agreement is
nonexclusive and that the Customer has no obligation to execute any or all of
its trades for futures interests through CFI. The parties acknowledge that the
Customer may execute and clear trades for futures interests through such other
broker or brokers as Demeter may direct from time to time. The Customer's
utilization of an additional commodity broker shall neither terminate this
Agreement nor modify in any regard the respective rights and obligations of the
Customer and CFI hereunder.
6. Compensation of CFI. In compensation of CFI's services
pursuant to this Agreement, DWR shall pay to CFI such fees and costs as DWR and
CFI shall agree from time to time, and the Customer shall pay CFI all floor
brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give-up" fees, any
taxes (other than income taxes), any third party clearing costs incurred by CFI,
costs associated with taking delivery of futures interests, fees for execution
of forward contract transactions (in the aggregate, "Transaction Costs"). DWR
shall reimburse the Customer at each month-end for all Transaction Costs
incurred by the Customer. The Customer shall have no obligation to reimburse DWR
for any payments made by DWR to CFI.
7. Investment Discretion. The parties recognize that CFI shall
have no authority to direct the futures interests investments to be made for the
Customer's account, but shall execute only such orders for the Customer's
account as DWR, Demeter or the Trading Advisors may direct from time to time.
However, the parties agree that CFI, and not the Trading Advisors, shall have
the authority and responsibility with regard to the investment, maintenance, and
management of the Customer's assets that are held in segregated or secured
accounts, as provided in Section 8 hereof.
8. Interest on Customer Funds. The Customer's assets deposited
with CFI will be segregated or secured in accordance with the Commodity Exchange
Act and CFTC regulations. All of such funds will be available for margin for the
Customer's trading. CFI shall pay to DWR such interest income on the Customer's
assets held by CFI as CFI and DWR shall agree from time to time. The Customer
understands that it will not receive any interest income on its assets held by
CFI other than that paid by DWR pursuant to the DWR Customer Agreement. The
Customer's assets held by CFI may be used solely as margin for the Customer's
trading.
9. Recording Conversations. CFI consents to the electronic
recording, at the discretion of the Customer, Customer's agents or DWR, of any
or all telephone conversations with CFI (without automatic tone warning device),
the use of same as evidence by either party in any action or proceeding arising
out of this Agreement, and in the Customer's, Customer's agents' or DWR's
erasure, at its discretion, of any recording as a part of its regular procedure
for handling of recordings.
10. Delivery; Option Exercise.
(a) The Customer acknowledges that the making or accepting of
delivery pursuant to a futures contract may involve a much higher degree of risk
than liquidating a position by offset. CFI has no control over and makes no
warranty with respect to grade, quality or tolerances of any commodity delivered
in fulfillment of a contract.
(b) The Customer agrees to give CFI timely notice and
immediately on request to inform CFI if the Customer intends to make or take
delivery under a futures contract or to exercise an option contract. If so
requested, the Customer shall provide CFI with satisfactory assurances that the
Customer can fulfill the Customer's obligation to make or take delivery under
any contract. The Customer shall furnish CFI with property deliverable by it
under any contract in accordance with CFI's instructions.
(c) CFI shall not have any obligation to exercise any long
option contract unless the Customer has furnished CFI with timely exercise
instructions and sufficient initial margin with respect to each underlying
futures contract.
11. Standard of Liability and Indemnity. Subject to Section 2
hereof, CFI and its affiliates (as defined below) shall not be liable to the
Customer, the General Partner or Limited Partners, or any of its or their
respective successors or assigns, for any act, omission, conduct, or activity
undertaken by or on behalf of the Customer pursuant to this Agreement which CFI
determines, in good faith, to be in the best interests of the Customer, unless
such act, omission, conduct, or activity by CFI or its affiliates constituted
misconduct or negligence.
The Customer shall indemnify, defend and hold harmless CFI and
its affiliates from and against any loss, liability, damage, cost or expense
(including attorneys' and accountants' fees and expenses incurred in the defense
of any demands, claims, or lawsuits) actually and reasonably incurred arising
from any act, omission, conduct, or activity undertaken by CFI on behalf of the
Customer pursuant to this Agreement, including, without limitation, any demands,
claims or lawsuits initiated by a Limited Partner (or assignee thereof),
provided that (i) CFI has determined, in good faith, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was in the
best interests of the Customer, and (ii) the act, omission, conduct, or activity
that was the basis for such loss, liability, damage, cost, or expense was not
the result of misconduct or negligence. Notwithstanding anything to the contrary
contained in the foregoing, neither CFI nor any of its affiliates shall be
indemnified by the Customer for any losses, liabilities, or expenses arising
from or out of an alleged violation of federal or state securities laws unless
(a) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(b) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (c) a court of
competent jurisdiction approves a settlement of the claims against the
particular indemnitee and finds that indemnification of the settlement and
related costs should be made, provided, with regard to such court approval, the
indemnitee must apprise the court of the position of the SEC, and the positions
of the respective securities administrators of Massachusetts, Missouri,
Tennessee and/or those other states and jurisdictions in which the plaintiffs
claim they were offered or sold Units, with respect to indemnification for
securities laws violations before seeking court approval for indemnification.
Furthermore, in any action or proceeding brought by a Limited Partner in the
right of the Customer to which CFI or any affiliate thereof is a party
defendant, any such person shall be indemnified only to the extent and subject
to the conditions specified in this Section 11. The Customer shall make advances
to CFI or its affiliates hereunder only if: (i) the demand, claim, lawsuit, or
legal action relates to the performance of duties or services by such persons to
the Customer; (ii) such demand, claim, lawsuit, or legal action is not initiated
by a Limited Partner; and (iii) such advances are repaid, with interest at the
legal rate under Delaware law, if the person receiving such advance is
ultimately found not to be entitled to indemnification hereunder.
CFI shall indemnify, defend and hold harmless the Customer and
its successors or assigns from and against any losses, liabilities, damages,
costs or expenses (including in connection with the defense or settlement of
claims; provided CFI has approved such settlement) incurred as a result of the
activities of CFI or its affiliates, provided, further, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was the result
of bad faith, misconduct or negligence.
The indemnities provided in this Section 11 by the Customer to
CFI and its affiliates shall be inapplicable in the event of any losses,
liabilities, damages, costs, or expenses arising out of, or based upon, any
material breach of any warranty, covenant, or agreement of CFI contained in this
Agreement to the extent caused by such breach. Likewise, the indemnities
provided in this Section 11 by CFI to the Customer and any of its successors and
assigns shall be inapplicable in the event of any losses, liabilities, damages,
costs, or expenses arising out of, or based upon, any material breach of any
warranty, covenant, or agreement of the Customer contained in this Agreement to
the extent caused by such breach.
As used in this Section 11, the term "affiliate" of CFI shall
mean: (i) any natural person, partnership, corporation, association, or other
legal entity directly or indirectly owning, controlling, or holding with power
to vote 10% or more of the outstanding voting securities of CFI; (ii) any
partnership, corporation, association, or other legal entity 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote by CFI; (iii) any natural person,
partnership, corporation, association, or other legal entity directly or
indirectly controlling, controlled by, or under common control with, CFI; or
(iv) any officer or director of CFI. Notwithstanding the foregoing, "affiliates"
for purposes of this Section 11 shall include only those persons acting on
behalf of CFI within the scope of the authority of CFI, as set forth in this
Agreement.
12. Term. This Agreement shall continue in effect until
terminated by any party giving not less than 60 days' prior written notice of
termination to the other parties. The Customer shall have the right to terminate
this Agreement
(i) at any time, effective upon thirty (30) days' prior
written notice to CFI, in the event that:
(A) CFI announces plans to discontinue
the provision of execution and
clearing services with respect to
futures contracts, options on
futures contracts or acting as a
dealer counterparty for foreign
exchange cash and forward contracts;
or
(B) CFI merges or consolidates with or
into or acquires or is acquired by,
another entity or entities acting in
concert (excluding any intergroup
reorganizations with any affiliates
of CFI or any capital contributions
by, or sale of CFI stock to any
affiliates of CFI, provided that the
guarantee agreement between DWR and
Credit Agricole Indosuez S.A. dated
as of July 31, 1997 remains in place
or a comparable guaranty is
substituted by a bank with a net
worth and credit rating equal to
Credit Agricole Indosuez S.A.) in a
transaction involving the purchase
or sale of stock or substantially
all of the assets of the acquired
entity or which involves a capital
contribution to or by such entity or
entities (in an amount representing
fifty percent (50%) or more of the
book value of CFI's or such entity's
(or their respective affiliate's)
net worth), or the purchase or sale
of stock representing fifty percent
(50%) or more of CFI's or such
entity's (or their respective
affiliate's) outstanding equity
securities; and
(ii) at any time effective immediately upon written
notice to CFI in the event:
(A) CFI ceases to be registered or
conduct business as a futures
commission merchant or discontinues
its membership or clearing
membership on any major futures
interest exchange in the United
States (or any affiliated clearing
corporation) or in the NFA; or
(B) a receiver, liquidator or trustee of
CFI is appointed by court order and
such order remains in effect for
more than thirty (30) days; or CFI
is adjudicated bankrupt or
insolvent; or any of CFI's property
is sequestered by court order and
such order remains in effect for
more than thirty (30) days; or a
petition is filed against CFI under
any bankruptcy, reorganization,
arrangement, insolvency,
readjustment or debt, dissolution or
liquidation law of any jurisdiction,
whether now or hereafter in effect,
and is not dismissed within thirty
(30) days after such filing; or CFI
files a petition in voluntary
bankruptcy or seeking relief under
any provision of any bankruptcy,
reorganization, arrangement,
insolvency, readjustment of debt,
dissolution or liquidation law of
any jurisdiction, whether now or
hereafter in effect, or consents to
the filing of any petition against
it under any such law; or
(C) CFI, DWR or the Customer is ordered
or otherwise directed to terminate
this Agreement by any governmental,
regulatory, or self-regulatory
authority.
Any such termination by any party shall be without penalty.
13. Complete Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters referred to herein, and
no other agreement, verbal or otherwise, shall be binding as among the parties
unless in writing and signed by the party against whom enforcement is sought.
14. Assignment. This Agreement may not be assigned by any
party without the express written consent of the other parties.
15. Amendment. This Agreement may not be amended except by the
written consent of the parties and provided such amendment is consistent with
the Prospectus.
16. Notices. All notices required or desired to be delivered
under this Agreement shall be in writing and shall be effective when delivered
personally on the day delivered, or when given by registered or certified mail,
postage prepaid, return receipt requested, on the day of receipt, addressed as
follows (or to such other address as the party entitled to notice shall
hereafter designate in accordance with the terms hereof):
if to the Customer:
DEAN WITTER SPECTRUM STRATEGIC L.P.
c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
President
if to DWR:
DEAN WITTER REYNOLDS INC.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
Executive Vice President
if to CFI:
CARR FUTURES INC
10 South Wacker Drive, Suite 1125
Chicago, Illinois 60606
Attn: Legal/Compliance Department
17. Survival. The provisions of this Agreement shall survive
the termination of this Agreement with respect to any matter arising while this
Agreement was in effect.
18. Headings. Headings of Sections herein are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
19. Incorporation by Reference. The Futures Account Agreement
annexed hereto is hereby incorporated by reference herein and made a part hereof
to the same extent as if such document were set forth in full herein. If any
provision of this Agreement is or at any time becomes inconsistent with the
annexed document, the terms of this Agreement shall control.
20. Governing Law; Venue. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York (without
regard to its choice of law principles). If any action or proceeding shall be
brought by a party to this Agreement or to enforce any right or remedy under
this Agreement, each party hereto hereby consents and will submit to the
jurisdiction of the courts of the State of New York or any federal court sitting
in the County, City and State of New York. Any action or proceeding brought by
any party to this Agreement to enforce any right, assert any claim, or obtain
any relief whatsoever in connection with this Agreement shall be brought by such
party exclusively in the courts of the State of New York or any federal court
sitting in the County, City and State of New York.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.
DEAN WITTER SPECTRUM STRATEGIC L.P
By: Demeter Management Corporation,
General Partner
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
President
DEAN WITTER REYNOLDS INC.
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
Executive Vice President
CARR FUTURES INC.
By: /s/ Bruce A. Beatus
-------------------------------
Name: Bruce A. Beatus
------------------------------
Title: General Counsel
------------------------------
<PAGE>
CARR FUTURES INC.
FUTURES ACCOUNT AGREEMENT
In consideration of the acceptance by Carr Futures Inc. ("Carr") of one or more
accounts of the undersigned ("Customer") (if more than one account is at any
time opened or reopened with Carr, all are covered by this Agreement and are
referred to individually and collectively as the "Account"), and Carr's
agreement to act as broker, directly or indirectly, or as dealer, for the
execution, clearance and/or carrying of transactions for the purchase and sale
of commodity interests, including commodities, forward contracts, commodity
futures contracts, options on commodity futures contracts and transaction
involving the exchange of futures for cash commodities or the exchange of
futures in connection with cash commodity transactions, Customer agrees as
follows:
1. APPLICABLE RULES AND REGULATIONS
The Account and each transaction therein shall be subject to the terms
of this Agreement and to (a) all applicable laws and the regulations,
rules and orders (collectively "regulations") of all regulatory and
self-regulatory organizations having jurisdiction and (b) the
constitution, by-laws, rules, regulations, orders, resolutions,
interpretations and customs and usages (collectively "rules") of the
market and any associated clearing organization (each an "exchange") on
or subject to the rules of which such transaction is executed and/or
cleared. The reference in the preceding sentence to exchange rules is
solely for Carr's protection and Carr's failure to comply therewith
shall not constitute a breach of this Agreement or relieve Customer of
any obligation or responsibility under this Agreement. Carr shall not
be liable to Customer as a result of any action by Carr, its officers,
directors, employees or agents to comply with any rule or regulation.
2. PAYMENTS TO CARR
Customer agrees to pay to Carr immediately on request (a) commissions,
give-up charges, fees and service charges as are in effect from time to
time, together with all applicable regulatory and self-regulatory
organization and exchange fees, charges and taxes; (b) the amount of
any debit balance or any other liability that may result from
transactions executed for the Account; and (c) interest on such debit
balance or liability at the prevailing rate charged by Carr at the time
such debit balance or liability arises and service charges on any such
debit balance or liability together with any reasonable costs and
attorneys' fees incurred in collecting any such debit balance or
liability. Customer acknowledges that Carr may charge commissions at
other rates to other customers.
3. CUSTOMER'S DUTY TO MAINTAIN ADEQUATE MARGIN
Customer shall at all times, and without prior notice or demand from
Carr, maintain adequate margin (also known as "performance bond") in
the Account so as to continually to meet the original and maintenance
margin requirements established by Carr for Customer. Carr may change
such requirements from time to time at Carr's discretion. Such margin
requirements may exceed the margin requirements set by any exchange or
other regulatory authority and may vary from Carr's requirements for
other customers. Customer agrees, when so requested, orally or by
written notice, immediately (in no less than one hour) to wire transfer
(by federal bank wire system to the account of Carr) margin funds, and
to furnish Carr with names of bank officers for immediate verification
of such transfers. Customer acknowledges and agrees that Carr may
receive and retain as its own any interest, increment, profit, gain or
benefit, directly or indirectly, accruing from any of the funds Carr
receives from Customer.
4. DELIVERY; OPTION EXERCISE
Liquidating instructions on open positions maturing in a current
delivery month must be given to Carr at least five business days prior
to the first notice day in the case of long positions, and at least
five business days prior to the last trading day in the case of short
positions. Alternatively, sufficient funds to take delivery or the
necessary delivery documents must be delivered to Carr within the same
period described above. If funds, documents or instructions are not
received, Carr may, without notice, either liquidate Customer's
position or make or receive delivery on behalf of Customer upon such
terms and by such methods as Carr, in its sole discretion, determines.
If, at any time, Customer fails to deliver to Carr any property
previously sold by Carr on Customer's behalf in compliance with
commodity interest contracts, or Carr shall deem it necessary (whether
by reason of the requirements of any exchange, clearing house or
otherwise) to replace any securities, commodity interest contracts,
financial instruments, or other property previously delivered by Carr
for the Account of Customer with other property of like or equivalent
kind or amount, Customer hereby authorizes Carr, in its sole judgment,
to borrow or to buy any property necessary to make delivery thereof, or
to replace any such property previously delivered, or to deliver the
same to such other party or to whom delivery is to be made. Carr may
subsequently repay any borrowing or purchase thereof with property
purchased or otherwise acquired for the amount of Customer. Customer
shall pay Carr for any cost, loss and damages from the foregoing,
including, but not limited to, consequential damages, penalties and
fines which Carr may incur or which Carr may sustain from its inability
to borrow or buy any such property.
Customer understands that some exchanges and clearing houses have
established cut-off times for the tender of exercise instructions, and
that an option will become worthless if instructions are not delivered
before such expiration time. Customer also understands that certain
exchanges and clearing houses automatically will exercise some
"in-the-money" options unless instructed otherwise. Customer
acknowledges full responsibility for taking action either to exercise
or to prevent the exercise of an option contract, as the case may be,
and Carr is not required to take any action with respect to an option
contract, including without limitations any action to exercise an
option prior to its expiration date, or to prevent the automatic
exercise of an option, except upon Customer's express instructions.
Customer further understands that Carr may establish exercise cut-off
times which may be different from the times established by exchanges
and clearing houses.
Customer understands that (a) all short option positions are subject to
assignment at any time, including positions established on the same day
that exercises are assigned, and (b) exercised assignment notices are
allocated randomly from among all Carr customer's short options
positions which are subject to exercise. A more detailed description of
Carr's allocation procedures is available upon request.
5. FOREIGN CURRENCY
If Carr enters into any transaction for Customer effected in a currency
other than U.S. dollars: (a) any profit or loss caused by changes in
the rate of exchange for such currency shall be for Customer's Account
and risk and (b) unless another currency is designated in Carr's
confirmation of such transaction, all margin for such transaction and
the profit or loss on the liquidation of such transaction shall be in
U.S. dollars at a rate of exchange determined by Carr in its discretion
on the basis of then prevailing market rates of exchange for such
foreign currency.
6. CARR MAY LIMIT POSITIONS HELD
Customer agrees that Carr, at its discretion, may limit the number of
open positions (net or gross) which Customer may execute, clear and/or
carry with or acquire through it. Customer agrees (a) not to make any
trade which would have the effect or exceeding such limits, (b) that
Carr may require Customer to reduce open positions carried with Carr
and (c) that Carr may refuse to accept orders to establish new
positions. Carr may impose and enforce such limits, reduction or
refusal whether or not they are required by applicable law, regulations
or rules. Customer shall comply with all position limits established by
any regulatory or self-regulatory organization or any exchange. In
addition, Customer agrees to notify Carr promptly if Customer is
required to file position reports with any regulatory or
self-regulatory organization or with any exchange.
7. NO WARRANTY AS TO INFORMATION OR RECOMMENDATION
Customer acknowledges that:
(a) Any market recommendations and information Carr may
communicate to Customer, although based upon information
obtained from sources believed by Carr to be reliable, may be
incomplete and not subject to verification;
(b) Carr makes no representation, warranty or guarantee as to, and
shall not be responsible for, the accuracy or completeness of
any information or trading recommendation furnished to
Customer;
(c) Recommendations to Customer as to any particular transaction
at any given time may differ among Carr's personnel due to
diversity in analysis of fundamental and technical factors and
may vary from any standard recommendation made by Carr in its
research reports or otherwise; and
(d) Carr has no obligation or responsibility to update any market
recommendations, research or information it communicates to
Customer.
Customer understands that Carr and its officers, directors, affiliates,
stockholders, representatives or associated persons may have positions
in and may intend to buy or sell commodity interests that are the
subject of market recommendations furnished to Customer, and that the
market positions of Carr or any such officer, director, affiliate,
stockholder, representative or associated person may or may not be
consistent with the recommendations furnished to Customer by Carr.
8. LIMITS ON CARR DUTIES; LIABILITY
Customer agrees:
(a) That Carr has no duty to apprise Customer of news or of the
value of any commodity interests or collateral pledged or in
any way to advise Customer with respect to the market;
(b) That the commissions which Carr receives are consideration
solely for the execution, reporting and carrying of Customer's
trades;
(c) If there is an Account Manager, an Account Manager's Agreement
for the Account Manager will be provided to Carr. Customer
represents it has received: (1) a disclosure document
concerning such Account Manager's trading advice, including,
in the event the Account Manager will trade options, the
options strategies to be utilized, or (2) a written statement
explaining why Account Manager is not required under
applicable law to provide such a disclosure document to
Customer; and
(d) Customer acknowledges, understands and agrees that Carr is in
no way responsible for any loss to Customer occasioned by the
actions of the Account Manager and Carr does not by
implication or otherwise endorse the operating methods or
trading strategies or programs of the Account Manager.
9. EXTRAORDINARY EVENTS
Customer agrees that Carr shall have no liability for damages, claims,
losses or expenses caused by any errors, omissions or delays resulting
from an act, condition or cause beyond the reasonable control of Carr,
including, but not limited to: war; insurrection; riot; strike; act of
God; fire; flood; extraordinary weather conditions; accident; action of
government authority; action of exchange, clearinghouse or clearing
organization; communications or power failure; equipment or software
malfunction; error, omission or delay in the report of transactions;
prices, exchange rates or other market or transaction information; or
the insolvency, bankruptcy, receivership, liquidation or other
financial difficulty of any bank, clearing broker, exchange, market,
clearinghouse or clearing organization.
10. INDEMNIFICATION OF CARR, CONTRIBUTION AND REIMBURSEMENT
(a) To the extent permitted by law, Customer agrees to indemnify
and hold harmless Carr and its shareholders, directors,
officers, employees, agents, affiliates and controlling
persons against any liability for damages, claims, losses or
expenses which they may incur as the result of: (x) Customer's
violation of federal or state laws or regulations, or of rules
of any exchange or self-regulatory organization; (y) any other
breach of this Agreement by Customer; or (z) any breach by
Carr of federal or state laws or regulations, or of the
charter provisions, by-laws, rules, margin or other
requirements, of the exchanges or self-regulatory
organizations, provided that such violation was caused by
Carr's acting in good faith on Customer's behalf. Such
damages, claims, losses or expenses shall include legal fees
and expenses, costs of settling claims, interest, and fines or
penalties imposed by the exchanges, self-regulatory
organization or governmental authority.
(b) Customer agrees that if the indemnification provided in
paragraph (a) above is held to be unavailable to Carr, the
parties hereto shall share in and contribute to such damages,
claims, losses or expenses in proportion to their relative
benefits from the transactions involved and their relative
degree of fault in causing the liability.
(c) Customer agrees to reimburse Carr and its shareholders,
directors, officers, employees, agents, affiliates and
controlling persons on demand for any costs incurred in
collecting any sums Customer owes under this Agreement and any
costs of successfully defending against claims asserted
against them by Customer.
11. NOTICES; TRANSMITTALS
Carr shall transmit all communications to Customer at Customer's
address, facsimile or telephone number set forth below or to such other
address as Customer may hereafter direct in writing. Customer shall
transmit all communications to Carr regarding this Agreement (except
routine inquiries concerning the Account) to 10 South Wacker Drive,
Suite 1100, Chicago, Illinois 60606; facsimile (312) 441-4201,
Attention: Legal/Compliance Department. All payments and deliveries to
Carr shall be made as instructed by Carr from time to time and shall be
deemed received only when actually received by Carr.
12. CONFIRMATION CONCLUSIVE
Confirmation of trades and any other notices sent to Customer shall be
conclusive and binding on Customer unless customer or Customer's agent
notifies Carr to the contrary (a) in the case of an oral report, orally
at the time received by Customer or its agent; or (b) in the case of a
written report or notice, in writing prior to opening of trading on the
business day next following receipt of the report. In addition, if
Customer has not received a written confirmation that a commodity
interest transaction has been executed within three business days after
Customer has placed an order with Carr to effect such transaction, and
has been informed or believes that such order has been or should have
been executed, then Customer immediately shall notify Carr thereof.
Absent such notice, Customer conclusively shall be deemed estopped to
object and to have waived any such objection to the failure to execute
or cause to be executed such transaction. Anything in this Section 12
notwithstanding, neither Customer nor Carr shall be bound by any
transaction or price reported in error.
13. SECURITY INTEREST
Customer hereby grants to Carr a first lien upon and a security
interest in any and all cash, securities, whether certificated or
uncertificated, security entitlements, investment property, financial
assets, foreign currencies, commodity interests and other property
(including securities and options) and the proceeds of all of the
foregoing (together the "Collateral") belonging to Customer or in which
Customer may have an interest, now or in the future, and held by Carr
or in Carr's control or carried in any of Customer's Accounts, or in
Customer's accounts carried under other agreements with Carr or its
affiliates. Such security interest is granted as security for the
performance by Customer of its obligations hereunder and for the
payment of all loans and other liabilities which Customer has or may in
the future have to Carr, whether under this Agreement or any other
agreement between the parties hereto. Customer agrees to execute such
further instruments, documents, filings and agreements as may be
requested at any time by Carr in order to perfect and maintain
perfected the foregoing lien and security interest. Carr, in its
discretion, may liquidate any Collateral to satisfy any margin or
Account deficiencies or to transfer the Collateral to the general
ledger account of Carr.
In the event that the provisions of Section 13, which relate to
Collateral in any account carried by Carr for Customer other than an
Account instituted hereunder, conflict with the agreement under which
such other account was instituted, such other agreement between Carr
and Customer shall take precedence over the provisions of this Section
13.
14. TRANSFER OF FUNDS
At any time and from time to time and without prior notice to Customer,
Carr may transfer from one Account to another Account in which Customer
has any interest, such excess funds, equities, securities or other
property as in Carr's judgment may be required for margin, or to reduce
any debit balance or to reduce or satisfy any deficits in such other
Accounts except that no such transfer may be made from a segregated
Account subject to the Commodity Exchange Act to another Account
maintained by Customer unless either Customer has authorized such
transfer in writing or Carr is effecting such transfer to enforce
Carr's security interest pursuant to Section 13. Carr promptly shall
confirm all transfers of funds made pursuant hereto to Customer in
writing.
15. CARR'S RIGHT TO LIQUIDATE CUSTOMER POSITIONS
In addition to all other rights of Carr set forth in this Agreement:
(a) When directed or required by a regulatory or self-regulatory
organization or exchange having jurisdiction over Carr or the
Account;
(b) Whenever Carr reasonably considers it necessary for its
protection because of margin requirements or otherwise;
(c) If Customer or any affiliate of Customer repudiates, violates,
breaches or fails to perform on a timely basis any term,
covenant or condition on its part to be performed under this
Agreement or another agreement with Carr;
(d) If a case in bankruptcy is commenced or if a proceeding under
any insolvency or other law for the protection of creditors or
for the appointment of a receiver, liquidator, trustee,
conservator, custodian or similar officer is filed by or
against Customer or any affiliate of Customer, or if Customer
or any affiliate of Customer makes or proposes to make any
arrangement or composition for the benefit of its creditors,
or if Customer (or any such affiliate) or any or all of its
property is subject to any agreement, order, judgment or
decree providing for Customer's dissolution, winding-up,
liquidation, merger, consolidation, reorganization or for the
appointment of a receiver, liquidator, trustee, conservator,
custodian or similar officer of Customer, such affiliate or
such property;
(e) Carr is informed of Customer's death or mental incapacity; or
(f) If an attachment or similar order is levied against the
Account or any other account maintained by a Customer or any
affiliate of Customer with Carr;
Carr shall have the right to (i) satisfy any obligations due Carr out
of any Customer's property (also referred to as "Collateral") in Carr's
custody or control, (ii) liquidate any or all of Customer's commodity
interest positions, such liquidation shall include transactions
involving the exchange of futures for cash commodities or the exchange
of futures in connection with cash commodity transactions, (iii) cancel
any or all of Customer's outstanding orders, (iv) treat any or all of
Customer's obligations due Carr as immediately due and payable, (v)
sell any or all of Customer's property in Carr's custody or control in
such manner as Carr determines to be commercially reasonable, and/or
(vi) terminate any or all of Carr's obligations for future performance
to Customer, all without any notice to or demand on Customer if deemed
necessary by Carr. Any sale hereunder may be made in any commercially
reasonable manner. Customer agrees that a prior demand, call or notice
shall not be considered a waiver of Carr's right to act without demand
or notice as herein provided, that Customer shall at all times be
liable for the payment of any debit balance owing in each Account upon
demand whether occurring upon a liquidation as provided under this
Section 15 or otherwise under this Agreement, and that in all cases
Customer shall be liable for any deficiency remaining in each Account
in the event of liquidation thereof in whole or in part together with
interest thereon and all costs relating to liquidation and collection
(including reasonable attorneys' fees). In the event that the
provisions of Section 15, which relate to Collateral in any account
carried by Carr for Customer other than an Account instituted
hereunder, conflict with the agreement under which such other account
was instituted, such other agreement between Carr and Customer shall
take precedence over the provisions of this Section 15.
16. CUSTOMER REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Customer represents and warrants to and agrees with Carr that:
(a) Customer has full power and authority to enter into this
Agreement and to engage in the transactions and perform its
obligations hereunder and contemplated hereby, and:
(1) If Customer is a corporation or partnership, Customer
represents and warrants that (a) it is duly organized
and in good standing under the laws of the
jurisdiction in which it is established and in every
state in which it does business; (b) is empowered to
enter into and perform this Agreement and to
effectuate transactions in commodity interests,
financial instruments and foreign currency as
contemplated hereby; (c) that Customer has determined
that trading in commodity interests is appropriate
for Customer, is prudent in all respects and does not
and will not violate any statute, rule, regulation,
judgment or decree to which Customer is subject or
bound; (d) that Customer has had at least one year's
prior experience in effectuating transactions in
commodity interests, financial instruments, and
foreign currency as contemplated hereby; and (e) no
person or entity has any interest in or control of
the Account to which this Agreement pertains except
as disclosed by Customer to Carr in writing.
(2) If Customer is a trust, Customer represents and
warrants that (a) it is a duly formed and existing
trust under the laws of the state of its formation or
such other laws as are applicable, including ERISA or
similar state law, and the party or parties
designated as trustee or trustees by Customer to Carr
in writing submitted herewith constitute the only or
all of the proper trustees thereof; (b) the trustee
or trustees are empowered to enter into and perform
this Agreement and to effectuate transactions in
commodity interests, financial instruments, and
foreign currency as contemplated hereby; (c) the
trustee or trustees make the representations set
forth in Section 1 hereof as if the term trustee(s)
were substituted for the term Customer therein; and
(d) no person or entity has any interest in or
control of the Account to which this Agreement
pertains except as disclosed by Customer to Carr in
writing.
(b) Neither Customer nor any partner, director, officer, member,
manager or employee of Customer nor any affiliate of Customer
is a partner, director, officer, member, manager or employee
of a futures commission merchant, introducing broker, bank,
broker-dealer, exchange or self-regulatory organization or an
employee or commissioner of the Commodity Futures Trading
Commission (the "CFTC"), except as previously disclosed in
writing to Carr;
(c) Any financial statements or other information furnished in
connection therewith are true, correct and complete. Except as
disclosed in writing, (i) Customer is not a commodity pool or
is exempt from registration under the rules of the CFTC, and
(ii) Customer is acting solely as principal and no one other
than Customer has any interest in any Account of Customer.
Customer hereby authorizes Carr to contact such banks,
financial institutions and credit agencies as Carr shall deem
appropriate for verification of the information contained
herein;
(d) Customer has determined that trading in commodity interests is
appropriate for Customer, is prudent in all respects and does
not and will not violate Customer's charter or by-laws (or
other comparable governing document) or any law, rule,
regulation, judgment, decree, order or agreement to which
Customer or its property is subject or bound;
(e) As required by CFTC regulations, Customer shall create, retain
and produce upon request of the applicable contract market,
the CFTC or other regulatory authority documents (such as
contracts, confirmations, telex printouts, invoices and
documents of title) with respect to cash transactions
underlying exchanges of futures for cash commodities or
exchange of futures in connection with cash commodity
transactions;
(f) Customer consents to the electronic recording, at Carr's
discretion, of any or all telephone conversations with Carr
(without automatic tone warning device); the use of same as
evidence by either party in any action or proceeding arising
out of the Agreement and in Carr's erasure, at its discretion,
of any recording as part of its regular procedure for handling
of recordings;
(g) Absent a separate written agreement between Customer and Carr
with respect to give-ups, Carr, in its discretion, may, but
shall have no obligation to, accept from other brokers
commodity interest transactions executed by such brokers on an
exchange for Customer and proposed to be "given-up" to Carr
for clearance and/or carrying in the Account;
(h) Carr, for and on behalf of Customer, is authorized and
empowered to place orders for commodity interest transactions
through one or more electronic or automated trading systems
maintained or operated by or under the auspices of an
exchange, that Carr shall not be liable or obligated to
Customer for any loss, damage, liability, cost or expense
(including but not limited to loss of profits, loss of use,
incidental or consequential damages) incurred or sustained by
Customer and arising in whole or in part, directly or
indirectly, from any fault, delay, omission, inaccuracy or
termination of a system or Carr's inability to enter, cancel
or modify an order on behalf of Customer on or through a
system. The provisions of this Section 16(h) shall apply
regardless of whether any customer claim arises in contract,
negligence, tort, strict liability, breach or fiduciary
obligations or otherwise; and
(i) If Customer is subject to the Financial Institution Reform,
Recovery and Enforcement Act of 1989, the certified
resolutions set forth following this Agreement have been
caused to be reflected in the minutes of Customer's Board of
Directors (or other comparable governing body) and this
Agreement is and shall be, continuously from the date hereof,
an official record of Customer.
Customer agrees to promptly notify Carr in writing if any of the
warranties and representations contained in this Section 16 become
inaccurate or in any way cease to be true, complete and correct.
17. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of the parties hereto, their
successors and assigns, and shall be binding upon the parties hereto,
their successors and assigns, provided, however, that this Agreement is
not assignable by any party without the prior written consent of the
other parties.
18. MODIFICATION OF AGREEMENT BY CARR; NON-WAIVER PROVISION
This Agreement may only be altered, modified or amended by mutual
written consent of the parties. The rights and remedies conferred upon
Carr shall be cumulative, and its forbearance to take any remedial
action available to it under this Agreement shall not waive its right
at any time or from time to time thereafter to take such action.
19. SEVERABILITY
If any term or provision hereof or the application thereof to any
persons or circumstances shall to any extent be contrary to any
exchange, government or self-regulatory regulation or contrary to any
federal, state or local law or otherwise be invalid or unenforceable,
the remainder of this Agreement or the application of such term or
provision to persons or circumstances other than those as to which it
is contrary, invalid or unenforceable, shall not be affected thereby.
20. CAPTIONS
All captions used herein are for convenience only, are not a part of
this Agreement, and are not to be used in construing or interpreting
any aspect of this Agreement.
21. TERMINATION
This Agreement shall continue in force until written notice of
termination is given by Customer or Carr. Termination shall not relieve
either party of any liability or obligation incurred prior to such
notice. Upon giving or receiving notice of termination, Customer will
promptly take all action necessary to transfer all open positions in
each Account to another futures commission merchant.
22. ENTIRE AGREEMENT
This Agreement (as amended by the attached Customer Agreement dated the
date hereof into which this Agreement is incorporated by reference)
constitutes the entire agreement between Customer and Carr with respect
to the subject matter hereof and supersedes any prior agreements
between the parties with respect to such subject matter.
23. GOVERNING LAW; CONSENT TO JURISDICTION
(a) In case of a dispute between Customer and Carr arising out of
or relating to the making or performance of this Agreement or
any transaction pursuant to this Agreement (i) this Agreement
and its enforcement shall be governed by the laws of the State
of Illinois without regard to principles of conflicts of laws,
and (ii) Customer will bring any legal proceeding against Carr
in, and Customer hereby consents in any legal proceeding by
Carr to the jurisdiction of, any state or federal court
located within Chicago, Illinois, in connection with all legal
proceedings arising directly, indirectly or otherwise in
connection with, out of, related to or from Customer's
Account, transactions contemplated by this Agreement or the
breach thereof. Customer hereby waives all objections
Customer, at any time, may have as to the propriety of the
court in which any such legal proceedings may be commenced.
Customer also agrees that any service of process mailed to
Customer at any address specified to Carr shall be deemed a
proper service of process on the undersigned. Customer agrees
that venue of all proceedings shall be in Chicago, Illinois.
(b) Notwithstanding the provisions of Section 23(a)(ii), Customer
may elect at this time to have all disputes described in this
Section resolved by arbitration. To make such election,
Customer must sign the Arbitration Agreement set forth in
Section 24. Notwithstanding such election, any question
relating to whether Customer or Carr has commenced an
arbitration proceeding in a timely manner, whether a dispute
is within the scope of the Arbitration Agreement or whether a
party (other than Customer or Carr) has consented to
arbitration and all proceedings to compel arbitration shall be
determined by a court as specified in Section 23(a)(ii).
24. ARBITRATION AGREEMENT (OPTIONAL)
Every dispute between Customer and Carr arising out of or relating to
the making or performance of this Agreement or any transaction pursuant
to this Agreement, shall be settled by arbitration in accordance with
the rules, then in effect, of the National Futures Association, the
contract market upon which the transacting giving rise to the claim was
executed, or the National Association of Securities Dealers as Customer
may elect. If Customer does not make such election by registered mail
addressed to Carr at 10 South Wacker Drive, Suite 1100, Chicago,
Illinois 60606, Attention: Legal/Compliance Department, within 45 days
after demand by Carr that the Customer make such election, then Carr
may make such election. Carr agrees to pay any incremental fees which
may be assessed by a qualified forum for making available a "mixed
panel" of arbitrators, unless the arbitrators determine that Customer
has acted in bad faith in initiating or conducting the proceedings.
Judgment upon any aware rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
THREE FORUMS EXIST FOR THE RESOLUTION OF COMMODITY DISPUTES: CIVIL
COURT LITIGATION, REPARATIONS AT THE COMMODITY FUTURES TRADING
COMMISSION ("CFTC") AND ARBITRATION CONDUCTED BY A SELF-REGULATORY OR
OTHER PRIVATE ORGANIZATION.
THE CFTC RECOGNIZES THAT THE OPPORTUNITY TO SETTLE DISPUTES BY
ARBITRATION MAY IN SOME CASES PROVIDE MANY BENEFITS TO CUSTOMERS,
INCLUDING THE ABILITY TO OBTAIN AN EXPEDITIOUS AND FINAL RESOLUTION OF
DISPUTES WITHOUT INCURRING SUBSTANTIAL COSTS. THE CFTC REQUIRES,
HOWEVER, THAT EACH CUSTOMER INDIVIDUALLY EXAMINE THE RELATIVE MERITS OF
ARBITRATION AND THAT YOUR CONSENT OF THIS ARBITRATION AGREEMENT BE
VOLUNTARY.
BY SIGNING THIS AGREEMENT, YOU (1) MAY BE WAIVING YOUR RIGHT TO SUE IN
A COURT OF LAW AND (2) ARE AGREEING TO BE BOUND BY ARBITRATION OF ANY
CLAIMS OR COUNTERCLAIMS WHICH YOU OR CARR MAY SUBMIT TO ARBITRATION
UNDER THIS AGREEMENT. YOU ARE NOT HOWEVER, WAIVING YOUR RIGHT TO ELECT
INSTEAD TO PETITION THE CFTC TO INSTITUTE REPARATIONS PROCEEDINGS UNDER
SECTION 14 OF THE COMMODITY EXCHANGE ACT WITH RESPECT TO ANY DISPUTE
WHICH MAY BE ARBITRATED PURSUANT TO THIS AGREEMENT. IN THE EVENT A
DISPUTE ARISES, YOU WILL BE NOTIFIED IF CARR INTENDS TO SUBMIT THE
DISPUTE TO ARBITRATION. IF YOU BELIEVE A VIOLATION OF THE COMMODITY
EXCHANGE ACT IS INVOLVED AND IF YOU PREFER TO REQUEST A SECTION 14
"REPARATIONS" PROCEEDINGS BEFORE THE CFTC, YOU WILL HAVE 45 DAYS FROM
THE DATE OF SUCH NOTICE IN WHICH TO MAKE THAT ELECTION.
YOU NEED NOT AGREE TO THIS ARBITRATION AGREEMENT TO OPEN AN ACCOUNT
WITH CARR.
See 17 CFR 1890.1-180.5.
Acceptance of this arbitration agreement requires a separate signature
on page 15.
25. CONSENT TO TAKE THE OTHER SIDE OF ORDERS (OPTIONAL)
Without its prior notice, Customer agrees that when Carr executes sell
or buy orders on Customer's behalf, Carr, its directors, officers,
employees, agents, affiliates, and any floor broker may take the other
side of customer's transaction through any Account of such person
subject to its being executed at prevailing prices in accordance with
and subject to the limitations and conditions, if any, contained in
applicable rules and regulations.
26. AUTHORIZATION TO TRANSFER FUNDS (OPTIONAL)
Without limiting other provisions herein, Carr is authorized to
transfer from any segregated Account subject to the Commodity Exchange
Act carried by Carr for the Customer to any other Account carried by
Carr for the Customer such amount of excess funds as in Carr's judgment
may be necessary at any time to avoid a margin call or to reduce a
debit balance in said Account. It is understood that Carr will confirm
in writing each such transfer of funds made pursuant to this
authorization within a reasonable time after such transfer.
27. ELECTRONIC TRANSMISSION OF STATEMENTS (OPTIONAL)
Customer elects and consents to receive transmission of statements of
transactions and statements of account solely by electronic means,
including without limitation, by electronic mail or facsimile. Customer
shall not incur any costs or fees in connection with the receipt of
such statements by electronic transmission. Customer shall receive such
statements by electronic transmission until such time as it revokes its
consent in writing to Carr.
28. SUBORDINATION AGREEMENT
(Applies only to Accounts with funds held in foreign currencies)
Funds of customers trading on United States contract markets may be
held in accounts denominated in a foreign currency with depositories
located outside or inside the United States or its territories if the
customer is domiciled in a foreign country or if the funds are held in
connection with contracts priced and settled in a foreign currency.
Such accounts are subject to the risk that events could occur which
hinder or prevent the availability of these funds for distribution to
customers. Such accounts also may be subject to foreign currency
exchange rate risks.
If authorized below, Customer authorizes the deposit of funds into such
depositories. For customer domiciled in the United States, this
authorization permits the holding of funds in regulated accounts only
if such funds are used to margin, guarantee, or secure positions in
such contracts or accrue as a result of such positions. In order to
avoid the possible dilution of other customer funds, a customer agrees
by accepting this subordination agreement that his claims based on such
funds will be subordinated as described below in the unlikely event
both of the following conditions are met: (1) Carr is placed in
receivership or bankruptcy, and (2) there are insufficient funds
available for distribution denominated in the foreign currency as to
which the customer has a claim to satisfy all claims against those
funds.
By initialing the Subordination Agreement below, Customer agrees that
if both of the conditions listed above occur, its claim against Carr's
assets attributable to funds held overseas in a particular foreign
currency may be satisfied out of segregated customer funds held in
accounts denominated in dollars or other foreign currencies only after
each customer whose funds are held in dollars or in such other foreign
currencies receives its pro-rata portion of such funds. It is further
agreed that in no event may a customer whose funds are so held receive
more than its pro-rata share of the aggregate pool consisting of funds
held in dollars, funds held in the particular foreign currency, and
non-segregated assets of Carr.
<PAGE>
OPTIONAL ELECTIONS/ACKNOWLEDGMENT
The following provisions, which are set forth in this Agreement, need not be
entered into to open the Account. Customer agrees that its optional elections
are as follows:
Signature required for each election
ARBITRATION AGREEMENT ----------------------------------
(Agreement Paragraph 24) (Date)
CONSENT TO TAKE THE OTHER SIDE OF
ORDERS (Agreement Paragraph 25) X /s/ Mark J. Hawley 11-6-98
----------------------------------
(Date)
AUTHORIZATION TO TRANSFER
FUNDS (Agreement Paragraph 26) ----------------------------------
(Date)
CONSENT TO RECEIVE STATEMENTS
BY ELECTRONIC TRANSMISSION
(Agreement Paragraph 27) ----------------------------------
(Date)
ACKNOWLEDGMENT OF
SUBORDINATION AGREEMENT (Agreement
Paragraph 28) (Required for
accounts holding non-U.S. X /s/ Mark J. Hawley 11-6-98
holding non-U.S currency -----------------------------------
) (Date)
HEDGE ELECTION
/ / Customer confirms that all transactions in the Account will represent
bona fide hedging transactions, as defined by the Commodity Futures
Trading Commission, unless Carr is notified otherwise not later than
the time an order is placed for the Account:
Pursuant to CFTC Regulation 190.06(d), Customer specifies and agrees, with
respect to hedging transactions in the Account, that in the unlikely event of
Carr's bankruptcy, it prefers that the bankruptcy trustee [check appropriate
box]:
A) / / Liquidate all open contracts without first seeking instructions either
from or on behalf of Customer.
B) / / Attempt to obtain instructions with respect to the disposition of all
open contracts.
(If neither box is checked, Customer shall be deemed to elect A).)
<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF RISK DISCLOSURE STATEMENTS
The undersigned hereby acknowledges its separate receipt from Carr, and its
understanding of each of the following documents prior to opening of the
Account:
o Risk Disclosure Statement for Futures and Options
o LME Risk Warning Notice
o NYMEX ACCESS(SM) Risk Disclosure Statement
o Globex(R)Customer Information and Risk Disclosure Statement
o Project A(TM)Customer Information Statement
o Questions & Answers on Flexible Options Trading at the CBOT
o CME Average Pricing System Disclosure Statement
o Special Notice to Foreign Brokers and Foreign Traders
REQUIRED SIGNATURES
CUSTOMER
The undersigned has received, read, understands and agrees to all the provisions
of this Agreement and the separate risk disclosure statements enumerated above
and agrees to promptly notify Carr in writing if any of the warranties and
representations contained herein become inaccurate or in any way cease to be
true, complete and correct.
Dean Witter Spectrum Strategic L.P.
- ---------------------------------------------------------------
Customer name(s)
By: Demeter Management Corporation
By: /s/ Mark J. Hawley December 1, 1997
----------------------------------------------------------------------------
Authorized signature(s) Date
Mark J. Hawley, President
- --------------------------------------------------------------------------------
[If applicable, print name and title of signatory]
CARR FUTURES INC.
Accepted and Agreed:
Carr Futures Inc.
By: /s/ Bruce A. Beatus By: /s/ Susan Schultz
----------------------------------- -------------------------------
Title: Bruce A. Beatus, General Counsel Title: Associate General Counsel
-------------------------------- ------------------------------
Date: December 1, 1997 _ Date: December 1, 1997
-------------------------------- ------------------------------
EXHIBIT 10.05
CARR FUTURES INC.
10 South Wacker Drive, Suite 1100
Chicago, IL 60606
Facsimile (312) 441-4201
INTERNATIONAL FOREIGN EXCHANGE MASTER AGREEMENT
MASTER AGREEMENT dated as of August 1, 1997, by and between
CARR FUTURES INC., a Delaware corporation and DEAN WITTER SPECTRUM STRATEGIC
L.P.
SECTION 1. DEFINITIONS
Unless otherwise required by the context, the following
terms shall have the following meanings in the Agreement:
"Agreement" has the meaning given to it in Section 2.2.
"Base Currency", as to a Party, means the Currency agreed to
as such in relation to it in Part VII of the Schedule.
"Business Day" means for purposes of: (i) clauses (i),
(viii) and (xii) of the definition of Event of Default, a
day which is a Local Banking Day for the Non-Defaulting
Party; (ii) solely in relation to delivery of a Currency, a
day which is a Local Banking Day in relation to that
Currency; and (iii) any other provision of the Agreement, a
day which is a Local Banking Day for the applicable
Designated Offices of both Parties; provided, however, that
neither Saturday nor Sunday shall be considered a Business
Day for any purpose.
"Close-Out Amount" has the meaning given to it in Section
5.1.
"Close-Out Date" means a day on which, pursuant to the
provisions of Section 5.1, the Non-Defaulting Party closes
out Currency Obligations or such a close-out occurs
automatically.
"Closing Gain", as to the Non-Defaulting Party, means the
difference described as such in relation to a particular
Value Date under the provisions of Section 5.1.
"Closing Loss", as to the Non-Defaulting Party, means the
difference described as such in relation to a particular
Value Date under the provisions of Section 5.1.
"Confirmation" means a writing (including telex, facsimile,
or other electronic means from which it is possible to
produce a hard copy) evidencing an FX Transaction, and
specifying:
(i) the Parties thereto and their Designated Offices
through which they are respectively acting,
(ii) the amounts of the Currencies being bought or sold
and by which Party,
(iii) the Value Date, and
(iv) any other term generally included in such a writing
in accordance with the practice of the relevant
foreign exchange market.
"Credit Support" has the meaning given to it in Section 5.2.
"Credit Support Document", as to a Party (the "first
Party"), means a guaranty, hypothecation agreement,
margin or security agreement or document, or any
other document containing an obligation of a third
party ("Credit Support Provider") or of the first
Party in favor of the other Party supporting any
obligations of the first Party under the Agreement.
"Credit Support Provider" has the meaning given to it in the
definition of Credit Support Document.
"Currency" means money denominated in the lawful currency of
any country or the Ecu.
"Currency Obligation" means any obligation of a Party to
deliver a Currency pursuant to an FX Transaction or the
application of Section 3.3(a) or (b).
"Custodian" has the meaning given to it in the definition of
Insolvency Proceeding.
"Defaulting Party" has the meaning given to it in the
definition of Event of Default.
"Designated Office(s)", as to a Party, means the office or
offices specified in Part II of the Schedule.
"Effective Date" means the date of this Master Agreement.
"Event of Default" means the occurrence of any of the
following with respect to a Party (the "Defaulting Party",
the other Party being the "Non-Defaulting Party"):
(i) the Defaulting Party shall (A) default in any payment
when due under the Agreement to the Non-Defaulting
Party with respect to any Currency Obligation and
such failure shall continue for two (2) Business Days
after the Non-Defaulting Party has given the
Defaulting Party written notice of non-payment, or
(B) fail to perform or comply with any other
obligation assumed by it under the Agreement and such
failure is continuing thirty (30) days after the
Non-Defaulting Party has given the Defaulting Party
written notice thereof;
(ii) the Defaulting Party shall commence a voluntary
Insolvency Proceeding or shall take any corporate
action to authorize any such Insolvency Proceeding;
(iii) a governmental authority or self-regulatory
organization having jurisdiction over either the
Defaulting Party or its assets in the country of its
organization or principal office (A) shall commence
an Insolvency Proceeding with respect to the
Defaulting Party or its assets or (B) shall take any
action under any bankruptcy, insolvency or other
similar law or any banking, insurance or similar law
or regulation governing the operation of the
Defaulting Party which may prevent the Defaulting
Party from performing its obligations under the
Agreement as and when due;
(iv) an involuntary Insolvency Proceeding shall be
commenced with respect to the Defaulting Party or its
assets by a person other than a governmental
authority or self-regulatory organization having
jurisdiction over either the Defaulting Party or its
assets in the country of its organization or
principal office and such Insolvency Proceeding (A)
results in the appointment of a Custodian or a
judgment of insolvency or bankruptcy or the entry of
an order for winding-up, liquidation, reorganization
or other similar relief, or (B) is not dismissed
within five (5) days of its institution or
presentation;
(v) the Defaulting Party is bankrupt or insolvent, as
defined under any bankruptcy or insolvency law
applicable to it;
(vi) the Defaulting Party fails, or shall otherwise be
unable, to pay its debts as they become due;
(vii) the Defaulting Party or any Custodian acting on
behalf of the Defaulting Party shall disaffirm,
disclaim or repudiate any Currency Obligation;
(viii) any representation or warranty made or given or
deemed made or given by the Defaulting Party pursuant
to the Agreement or any Credit Support Document shall
prove to have been false or misleading in any
material respect as at the time it was made or given
or deemed made or given and one (1) Business Day has
elapsed after the Non-Defaulting Party has given the
Defaulting Party written notice thereof;
(ix) the Defaulting Party consolidates or amalgamates with
or merges into or transfers all or substantially all
its assets to another entity and (A) the
creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of
the Defaulting Party prior to such action, or (B) at
the time of such consolidation, amalgamation, merger
or transfer the resulting, surviving or transferee
entity fails to assume all the obligations of the
Defaulting Party under the Agreement by operation of
law or pursuant to an agreement satisfactory to the
Non-Defaulting Party;
(x) by reason of any default, or event of default or
other similar condition or event, any Specified
Indebtedness (being Specified Indebtedness of an
amount which, when expressed in the Currency of the
Threshold Amount, is in aggregate equal to or in
excess of the Threshold Amount) of the Defaulting
Party or any Credit Support Provider in relation to
it: (A) is not paid on the due date therefor and
remains unpaid after any applicable grace period has
elapsed, or (B) becomes, or becomes capable at any
time of being declared, due and payable under
agreements or instruments evidencing such Specified
Indebtedness before it would otherwise have been due
and payable;
(xi) the Defaulting Party is in breach of or default under
any Specified Transaction and any applicable grace
period has elapsed, and there occurs any liquidation
or early termination of, or acceleration of
obligations under, that Specified Transaction or the
Defaulting Party (or any Custodian on its behalf)
disaffirms, disclaims or repudiates the whole or any
part of a Specified Transaction;
(xii) (A) any Credit Support Provider of the Defaulting
Party or the Defaulting Party itself fails to comply
with or perform any agreement or obligation to be
complied with or performed by it in accordance with
the applicable Credit Support Document and such
failure is continuing after any applicable grace
period has elapsed; (B) any Credit Support Document
relating to the Defaulting Party expires or ceases to
be in full force and effect prior to the satisfaction
of all obligations of the Defaulting Party under the
Agreement, unless otherwise agreed in writing by the
Non-Defaulting Party; (C) the Defaulting Party or any
Credit Support Provider of the Defaulting Party (or,
in either case, any Custodian acting on its behalf)
disaffirms, disclaims or repudiates, in whole or in
part, or challenges the validity of, any Credit
Support Document; (D) any representation or warranty
made or given or deemed made or given by any Credit
Support Provider of the Defaulting Party pursuant to
any Credit Support Document shall prove to have been
false or misleading in any material respect as at the
time it was made or given or deemed made or given and
one (1) Business Day has elapsed after the
Non-Defaulting Party has given the Defaulting Party
written notice thereof; or (E) any event set out in
(ii) to (vii) or (ix) to (xi) above occurs in respect
of any Credit Support Provider of the Defaulting
Party; or
(xiii) any other condition or event specified in Part IX of
the Schedule or in Section 8.14 if made applicable to
the Agreement in Part XI of the Schedule.
"FX Transaction" means any transaction between the Parties
for the purchase by one Party of an agreed amount in one
Currency against the sale by it to the other of an agreed
amount in another Currency, both such amounts either being
deliverable on the same Value Date or, if the Parties have
so agreed in Part VI of the Schedule, being cash-settled in
a single Currency, which is or shall become subject to the
Agreement and in respect of which transaction the Parties
have agreed (whether orally, electronically or in writing):
the Currencies involved, the amounts of such Currencies to
be purchased and sold, which Party will purchase which
Currency and the Value Date.
"Insolvency Proceeding" means a case or proceeding seeking a
judgment of or arrangement for insolvency, bankruptcy,
composition, rehabilitation, reorganization, administration,
winding-up, liquidation or other similar relief with respect
to the Defaulting Party or its debts or assets, or seeking
the appointment of a trustee, receiver, liquidator,
conservator, administrator, custodian or other similar
official (each, a "Custodian") of the Defaulting Party or
any substantial part of its assets, under any bankruptcy,
insolvency or other similar law or any banking, insurance or
similar law governing the operation of the Defaulting Party.
"LIBOR", with respect to any Currency and date, means the
average rate at which deposits in the Currency for the
relevant amount and time period are offered by major banks
in the London interbank market as of 11:00 a.m. (London
time) on such date, or, if major banks do not offer deposits
in such Currency in the London interbank market on such
date, the average rate at which deposits in the Currency for
the relevant amount and time period are offered by major
banks in the relevant foreign exchange market at such time
on such date as may be determined by the Party making the
determination.
"Local Banking Day" means (i) for any Currency, a day on
which commercial banks effect deliveries of that Currency in
accordance with the market practice of the relevant foreign
exchange market, and (ii) for any Party, a day in the
location of the applicable Designated Office of such Party
on which commercial banks in that location are not
authorized or required by law to close.
"Master Agreement" means the terms and conditions set forth
in this Master Agreement, including the Schedule.
"Matched Pair Novation Netting Office(s)", in respect of a
Party, means the Designated Office(s) specified in Part V of
the Schedule.
"Non-Defaulting Party" has the meaning given to it in the
definition of Event of Default.
"Novation Netting Office(s)", in respect of a Party, means
the Designated Office(s) specified in Part V of the
Schedule.
"Parties" means the parties to the Agreement, including
their successors and permitted assigns (but without
prejudice to the application of clause (ix) of the
definition Event of Default); and the term "Party" shall
mean whichever of the Parties is appropriate in the context
in which such expression may be used.
"Proceedings" means any suit, action or other proceedings
relating to the Agreement or any FX Transaction.
"Schedule" means the Schedule attached to and part of this
Master Agreement, as it may be amended from time to time by
agreement of the Parties.
"Settlement Netting Office(s)", in respect of a Party, means
the Designated Office(s) specified in Part V of the
Schedule.
"Specified Indebtedness" means any obligation (whether
present or future, contingent or otherwise, as principal or
surety or otherwise) in respect of borrowed money, other
than in respect of deposits received.
"Specified Transaction" means any transaction (including an
agreement with respect thereto) between one Party to the
Agreement (or any Credit Support Provider of such Party) and
the other Party to the Agreement (or any Credit Support
Provider of such Party) which is a rate swap transaction,
basis swap, forward rate transaction, commodity swap,
commodity option, equity or equity linked swap, equity or
equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction,
cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect
to any of these transactions) or any combination of any of
the foregoing transactions.
"Spot Date" means the spot delivery day for the relevant
pair of Currencies as generally used by the relevant foreign
exchange market.
"Threshold Amount" means the amount specified as such for
each Party in Part VIII of the Schedule.
"Value Date" means, with respect to any FX Transaction, the
Business Day (or where market practice in the relevant
foreign exchange market in relation to the two Currencies
involved provides for delivery of one Currency on one date
which is a Local Banking Day in relation to that Currency
but not to the other Currency and for delivery of the other
Currency on the next Local Banking Day in relation to that
other Currency ("Split Settlement") the two (2) Local
Banking Days in accordance with that market practice) agreed
by the Parties for delivery of the Currencies to be
purchased and sold pursuant to such FX Transaction, and,
with respect to any Currency Obligation, the Business Day
(or, in the case of Split Settlement, Local Banking Day)
upon which the obligation to deliver Currency pursuant to
such Currency Obligation is to be performed.
SECTION 2. FX TRANSACTIONS
2.1 Scope of the Agreement. The Parties (through their
respective Designated Offices) may enter into FX
Transactions, for such quantities of such Currencies, as may
be agreed subject to the terms of the Agreement; provided
that neither Party shall be required to enter into any FX
Transaction with the other Party. Unless otherwise agreed in
writing by the Parties, each FX Transaction entered into
between Designated Offices of the Parties on or after the
Effective Date shall be governed by the Agreement. Each FX
Transaction between any two Designated Offices of the
Parties outstanding on the Effective Date which is
identified in Part I of the Schedule shall also be governed
by the Agreement.
2.2 Single Agreement. This Master Agreement, the terms
agreed between the Parties with respect to each FX
Transaction (and, to the extent recorded in a Confirmation,
each such Confirmation), and all amendments to any of such
items shall together form the agreement between the Parties
(the "Agreement") and shall together constitute a single
agreement between the Parties. The Parties acknowledge that
all FX Transactions are entered into in reliance upon such
fact, it being understood that the Parties would not
otherwise enter into any FX Transaction.
2.3 Confirmations. FX Transactions shall be promptly
confirmed by the Parties by Confirmations exchanged by mail,
telex, facsimile or other electronic means from which it is
possible to produce a hard copy. The failure by a Party to
issue a Confirmation shall not prejudice or invalidate the
terms of any FX Transaction.
2.4 Inconsistencies. In the event of any inconsistency
between the provisions of the Schedule and the other
provisions of the Agreement, the Schedule will prevail. In
the event of any inconsistency between the terms of a
Confirmation and the other provisions of the Agreement, the
other provisions of the Agreement shall prevail, and the
Confirmation shall not modify the other terms of the
Agreement.
SECTION 3. SETTLEMENT AND NETTING
3.1 Settlement. Subject to Sections 3.2 and 3.3, each Party
shall deliver to the other Party the amount of the Currency
to be delivered by it under each Currency Obligation on the
Value Date for such Currency Obligation.
3.2 Settlement Netting. If, on any date, more than one
delivery of a particular Currency under Currency Obligations
is to be made between a pair of Settlement Netting Offices,
then each Party shall aggregate the amounts of such Currency
deliverable by it and only the difference between these
aggregate amounts shall be delivered by the Party owing the
larger aggregate amount to the other Party, and, if the
aggregate amounts are equal, no delivery of the Currency
shall be made.
3.3 Novation Netting.
(a) By Currency. If the Parties enter into an FX
Transaction through a pair of Novation Netting
Offices giving rise to a Currency Obligation for the
same Value Date and in the same Currency as a then
existing Currency Obligation between the same pair of
Novation Netting Offices, then immediately upon
entering into such FX Transaction, each such Currency
Obligation shall automatically and without further
action be individually canceled and simultaneously
replaced by a new Currency Obligation for such Value
Date determined as follows: the amounts of such
Currency that would otherwise have been deliverable
by each Party on such Value Date shall be aggregated
and the Party with the larger aggregate amount shall
have a new Currency Obligation to deliver to the
other Party the amount of such Currency by which its
aggregate amount exceeds the other Party's aggregate
amount, provided that if the aggregate amounts are
equal, no new Currency Obligation shall arise. This
Section 3.3 shall not affect any other Currency
Obligation of a Party to deliver any different
Currency on the same Value Date.
(b) By Matched Pair. If the Parties enter into an FX
Transaction between a pair of Matched Pair Novation
Netting Offices then the provisions of Section 3.3(a)
shall apply only in respect of Currency Obligations
arising by virtue of FX Transactions entered into
between such pair of Matched Pair Novation Netting
Offices and involving the same pair of Currencies and
the same Value Date.
3.4 General.
(a) Inapplicability of Sections 3.2 and 3.3. The
provisions of Sections 3.2 and 3.3 shall not apply if
a Close-Out Date has occurred or a voluntary or
involuntary Insolvency Proceeding or action of the
kind described in clause (ii), (iii) or (iv) of the
definition of Event of Default has occurred without
being dismissed in relation to either Party.
(b) Failure to Record. The provisions of Section 3.3
shall apply notwithstanding that either Party may
fail to record the new Currency Obligations in its
books.
(c) Cutoff Date and Time. The provisions of Section 3.3
are subject to any cut-off date and cut-off time
agreed between the applicable Novation Netting
Offices and Matched Pair Novation Netting Offices of
the Parties.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 Representations and Warranties. Each Party represents
and warrants to the other Party as of the Effective Date and
as of the date of each FX Transaction that: (i) it has
authority to enter into the Agreement (including such FX
Transaction); (ii) the persons entering into the Agreement
(including such FX Transaction) on its behalf have been duly
authorized to do so; (iii) the Agreement (including such FX
Transaction) is binding upon it and enforceable against it
in accordance with its terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and
applicable principles of equity) and does not and will not
violate the terms of any agreements to which such Party is
bound; (iv) no Event of Default, or event which, with notice
or lapse of time or both, would constitute and Event of
Default, has occurred and is continuing with respect to it;
and (v) it acts as principal in entering into each FX
Transaction; and (vi) if the Parties have so specified in
Part XV of the Schedule, it makes the representations and
warranties set forth in such Part XV.
4.2 Covenants. Each Party covenants to the other Party that:
(i) it will at all times obtain and comply with the terms of
and do all that is necessary to maintain in full force and
effect all authorizations, approvals, licenses and consents
required to enable it lawfully to perform its obligations
under the Agreement; (ii) it will promptly notify the other
Party of the occurrence of any Event of Default with respect
to itself or any Credit Support Provider in relation to it;
and (iii) if the Parties have set forth additional covenants
in Part XVI of the Schedule, it makes the covenants set
forth in such Part XVI.
SECTION 5 CLOSE-OUT AND LIQUIDATION
5.1 Manner of Close-Out and Liquidation. (a) Close-Out. If
an Event of Default has occurred and is continuing, then the
Non-Defaulting Party shall have the right to close-out all,
but not less than all, outstanding Currency Obligations
(including any Currency Obligation which has not been
performed and in respect of which the Value Date is on or
precedes the Close-Out Date) except to the extent that in
the good faith opinion of the Non-Defaulting Party certain
of such Currency Obligations may not be closed-out under
applicable law. Such close-out shall be effective upon
receipt by the Defaulting Party of notice that the
Non-Defaulting Party is terminating such Currency
Obligations. Notwithstanding the foregoing, unless otherwise
agreed by the Parties in Part X of the Schedule, in the case
of an Event of Default in clause (ii), (iii) or (iv) of the
definition thereof with respect to a Party and, if agreed by
the Parties in Part IX of the Schedule, in the case of any
other Event of Default specified and so agreed in Part IX
with respect to a Party, close-out shall be automatic as to
all outstanding Currency Obligations, as of the time
immediately preceding the institution of the relevant
Insolvency Proceeding or action. The Non-Defaulting Party
shall have the right to liquidate such closed-out Currency
Obligations as provided below.
(b) Liquidation. Liquidation of Currency Obligations
terminated by close-out shall be effected as follows:
(i) Calculating Closing Gain or Loss. The
Non-Defaulting Party shall calculate in good faith,
with respect to each such terminated Currency
Obligation, except to the extent that in the good
faith opinion of the Non-Defaulting Party certain
of such Currency Obligations may not be liquidated
as provided herein under applicable law, as of the
Close-Out Date or as soon thereafter as reasonably
practicable, the Closing Gain, or, as appropriate,
the Closing Loss, as follows:
(A) for each Currency Obligation calculate a
"Close-Out Amount" as follows:
(1) in the case of a Currency Obligation
whose Value Date is the same as or
is later than the Close-Out Date,
the amount of such Currency
Obligation; or
(2) in the case of a Currency Obligation
whose Value Date precedes the
Close-Out Date, the amount of such
Currency Obligation increased, to
the extent permitted by applicable
law, by adding interest thereto from
and including the Value Date to but
excluding the Close-Out Date at
overnight LIBOR; and
(3) for each such amount in a Currency
other than the Non-Defaulting
Party's Base Currency, convert such
amount into the Non-Defaulting
Party's Base Currency at the rate of
exchange at which, at the time of
the calculation, the Non-Defaulting
Party can buy such Base Currency
with or against the Currency of the
relevant Currency Obligation for
delivery (x) if the Value Date of
such Currency Obligation is on or
after the Spot Date as of such time
of calculation for the Base
Currency, on the Value Date of that
Currency Obligation or (y) if such
Value Date precedes such Spot Date,
for delivery on such Spot Date (or,
in either case, if such rate of
exchange is not available,
conversion shall be accomplished by
the Non-Defaulting Party using any
commercially reasonable method); and
(B) determine in relation to each Value Date: (1)
the sum of all Close-Out Amounts relating to
Currency Obligations under which the
Non-Defaulting Party would otherwise have
been entitled to receive the relevant amount
on that Value Date; and (2) the sum of all
Close-Out Amounts relating to Currency
Obligations under which the Non-Defaulting
Party would otherwise have been obliged to
deliver the relevant amount to the Defaulting
Party on that Value Date; and
(C) if the sum determined under (B)(1) is greater
than the sum determined under (B)(2), the
difference shall be the Closing Gain for such
Value Date; if the sum determined under
(B)(1) is less than the sum determined under
(B)(2), the difference shall be the Closing
Loss for such Value Date.
(ii) Determining Present Value. To the extent permitted
by applicable law, the Non-Defaulting Party shall
adjust the Closing Gain or Closing Loss for each
Value Date falling after the Close-Out Date to
present value by discounting the Closing Gain or
Closing Loss from and including the Value Date to
but excluding the Close-Out Date, at LIBOR with
respect to the Non-Defaulting Party's Base Currency
as at the Close-Out Date or at such other rate as
may be prescribed by applicable law.
(iii) Netting. The Non-Defaulting Party shall aggregate
the following amounts so that all such amounts are
netted into a single liquidated amount payable to
or by the Non-Defaulting Party: (x) the sum of the
Closing Gains for all Value Dates (discounted to
present value, where appropriate, in accordance
with the provisions of Section 5.1(b)(ii)) (which
for the purposes of this aggregation shall be a
positive figure); and (y) the sum of the Closing
Losses for all Value Dates (discounted to present
value, where appropriate, in accordance with the
provisions of Section 5.1(b)(ii)) (which for the
purposes of the aggregation shall be a negative
figure).
(iv) Settlement Payment. If the resulting net amount is
positive, it shall be payable by the Defaulting
Party to the Non-Defaulting Party, and if it is
negative, then the absolute value of such amount
shall be payable by the Non-Defaulting Party to the
Defaulting Party.
5.2 Set-Off Against Credit Support. Where close-out and
liquidation occurs in accordance with Section 5.1, the
Non-Defaulting Party shall also be entitled (i) to set off
the net payment calculated in accordance with Section
5.1(b)(iv) which the Non-Defaulting Party owes to the
Defaulting Party, if any, against any credit support or
other collateral ("Credit Support") held by the Defaulting
Party pursuant to a Credit Support Document or otherwise
(including the liquidated value of any non-cash Credit
Support) in respect of the Non-Defaulting Party's
obligations under the Agreement or (ii) to set off the net
payment calculated in accordance with Section 5.1(b)(iv)
which the Defaulting Party owes to the Non-Defaulting Party,
if any, against any Credit Support held by the
Non-Defaulting Party (including the liquidated value of any
non-cash Credit Support) in respect of the Defaulting
Party's obligations under the Agreement; provided that, for
purposes of either such set-off, any Credit Support
denominated in a Currency other than the Non-Defaulting
Party's Base Currency shall be converted into such Base
Currency at the spot price determined by the Non-Defaulting
Party at which, at the time of calculation, the
Non-Defaulting Party could enter into a contract in the
foreign exchange market to buy the Non-Defaulting Party's
Base Currency in exchange for such Currency.
5.3 Other Foreign Exchange Transactions. Where close-out and
liquidation occurs in accordance with Section 5.1, the
Non-Defaulting Party shall also be entitled to close-out and
liquidate, to the extent permitted by applicable law, any
other foreign exchange transaction entered into between the
Parties which is then outstanding in accordance with
provisions of Section 5.1, with each obligation of a Party
to deliver a Currency under such a foreign exchange
transaction being treated as if it were a Currency
Obligation under the Agreement.
5.4 Payment and Late Interest. The net amount payable by one
Party to the other Party pursuant to the provisions of
Sections 5.1 and 5.3 above shall be paid by the close of
business on the Business Day following the receipt by the
Defaulting Party of notice of the Non-Defaulting Party's
settlement calculation, with interest at overnight LIBOR
from and including the Close-Out Date to but excluding such
Business Day (and converted as required by applicable law
into any other Currency, any costs of conversion to be borne
by, and deducted from any payment to, the Defaulting Party).
To the extent permitted by applicable law, any amounts owed
but not paid when due under this Section 5 shall bear
interest at overnight LIBOR (or, if conversion is required
by applicable law into some other Currency, either overnight
LIBOR with respect to such other Currency or such other rate
as may be prescribed by such applicable law) for each day
for which such amount remains unpaid. Any addition of
interest or discounting required under this Section 5 shall
be calculated on the basis of a year of such number of days
as is customary for transactions involving the relevant
Currency in the relevant foreign exchange market.
5.5 Suspension of Obligations. Without prejudice to the
foregoing, so long as a Party shall be in default in payment
or performance to the other Party under the Agreement and
the other Party has not exercised its rights under this
Section 5, or, if "Adequate Assurances" is specified as
applying to the Agreement in Part XI of the Schedule, during
the pendency of a reasonable request to a Party for adequate
assurances of its ability to perform its obligations under
the Agreement, the other Party may, at its election and
without penalty, suspend its obligation to perform under the
Agreement.
5.6 Expenses. The Defaulting Party shall reimburse the
Non-Defaulting Party in respect of all out-of-pocket
expenses incurred by the Non-Defaulting Party (including
fees and disbursements of counsel, including attorneys who
may be employees of the Non-Defaulting Party) in connection
with any reasonable collection or other enforcement
proceedings related to the payments required under the
Agreement.
5.7 Reasonable Pre-Estimate. The Parties agree that the
amounts recoverable under this Section 5 are a reasonable
pre-estimate of loss and not a penalty. Such amounts are
payable for the loss of bargain and the loss of protection
against future risks and, except as otherwise provided in
the Agreement, neither Party will be entitled to recover any
additional damages as a consequence of such losses.
5.8 No Limitation of Other Rights; Set-Off. The
Non-Defaulting Party's rights under this Section 5 shall be
in addition to, and not in limitation or exclusion of, any
other rights which the Non-Defaulting Party may have
(whether by agreement, operation of law or otherwise), and,
to the extent not prohibited by law, the Non-Defaulting
Party shall have a general right of set-off with respect to
all amounts owed by each Party to the other Party, whether
due and payable or not due and payable (provided that any
amount not due and payable at the time of such set-off
shall, if appropriate, be discounted to present value in a
commercially reasonable manner by the Non-Defaulting Party).
The Non-Defaulting Party's rights under this Section 5.8 are
subject to Section 5.7.
SECTION 6. FORCE MAJEURE, ACT OF STATE, ILLEGALITY OR IMPOSSIBILITY
6.1 Force Majeure, Act of State, Illegality or
Impossibility. If either Party is prevented from or hindered
or delayed by reason of force majeure or act of state in the
delivery or receipt of any Currency in respect of a Currency
Obligation or if it becomes or, in the good faith judgment
of one of the Parties, may become unlawful or impossible for
either Party to make or receive any payment in respect of a
Currency Obligation, then the Party for whom such
performance has been prevented, hindered or delayed or has
become illegal or impossible shall promptly give notice
thereof to the other Party and either Party may, by notice
to the other Party, require the close-out and liquidation of
each affected Currency Obligation in accordance with the
provisions of Sections 5.1 and, for such purposes, the Party
unaffected by such force majeure, act of state, illegality
or impossibility (or, if both Parties are so affected,
whichever Party gave the relevant notice) shall perform the
calculation required under Section 5.1 as if it were the
Non-Defaulting Party. Nothing in this Section 6.1 shall be
taken as indicating that the Party treated as the Defaulting
Party for the purpose of calculations required by Section
5.1 has committed any breach or default.
6.2 Transfer to Avoid Force Majeure, Act of State,
Illegality or Impossibility. If Section 6.1 becomes
applicable, unless prohibited by law, the Party which has
been prevented, hindered or delayed from performing shall,
as a condition to its right to designate a close-out and
liquidation of any affected Currency Obligation, use all
reasonable efforts (which will not require such Party to
incur a loss, excluding immaterial, incidental expenses) to
transfer as soon as practicable, and in any event before
twenty (20) days after it gives notice under Section 6.1,
all its rights and obligations under the Agreement in
respect of the affected Currency Obligations to another of
its Designated Offices so that such force majeure, act of
state, illegality or impossibility ceases to exist. Any such
transfer will be subject to the prior written consent of the
other Party, which consent will not be withheld if such
other Party's policies in effect at such time would permit
it to enter into transactions with the transferee Designated
Office on the terms proposed, unless such transfer would
cause the other Party to incur a material tax or other cost.
SECTION 7. PARTIES TO RELY ON THEIR OWN EXPERTISE
Each Party will be deemed to represent to the other Party on
the date on which it enters into an FX Transaction that
(absent a written agreement between the Parties that
expressly imposes affirmative obligations to the contrary
for that FX Transaction): (i)(A) it is acting for its own
account, and it has made its own independent decisions to
enter into that FX Transaction and as to whether that FX
Transaction is appropriate or proper for it based upon its
own judgment and upon advice from such advisors as it has
deemed necessary; (B) it is not relying on any communication
(written or oral) of the other Party as investment advice or
as a recommendation to enter into that FX Transaction, it
being understood that information and explanations related
to the terms and conditions of an FX Transaction shall not
be considered investment advice or a recommendation to enter
into that FX Transaction; and (C) it has not received from
the other Party any assurance or guarantee as to the
expected results of that FX Transaction; (ii) it is capable
of evaluating and understanding (on its own behalf or
through independent professional advice), and understands
and accepts, the terms, conditions and risks of that FX
Transaction; and (iii) the other Party is not acting as a
fiduciary or an advisor for it in respect of that FX
Transaction.
SECTION 8. MISCELLANEOUS
8.1 Currency Indemnity. The receipt or recovery by either
Party (the "first Party") of any amount in respect of an
obligation of the other Party (the "second Party") in a
Currency other than that in which such amount was due,
whether pursuant to a judgment of any court or pursuant to
Section 5 or 6, shall discharge such obligation only to the
extent that, on the first day on which the first Party is
open for business immediately following such receipt or
recovery, the first Party shall be able, in accordance with
normal banking practice, to purchase the Currency in which
such amount was due with the Currency received or recovered.
If the amount so purchasable shall be less than the original
amount of the Currency in which such amount was due, the
second Party shall, as a separate obligation and
notwithstanding any judgment of any court, indemnify the
first Party against any loss sustained by it. The second
Party shall in any event indemnify the first Party against
any costs incurred by it in making any such purchase of
Currency.
8.2 Assignment. Neither Party may assign, transfer or charge
or purport to assign, transfer or charge its rights or its
obligations under the Agreement to a third party without the
prior written consent of the other Party and any purported
assignment, transfer or charge in violation of this Section
8.2 shall be void.
8.3 Telephonic Recording. The Parties agree that each Party
and its agents may electronically record all telephonic
conversations between them and that any such recordings may
be submitted in evidence to any court or in any Proceedings
for the purpose of establishing any matters pertinent to the
Agreement.
8.4 Notices. Unless otherwise agreed, all notices,
instructions and other communications to be given to a Party
under the Agreement shall be given to the address, telex (if
confirmed by the appropriate answerback), facsimile
(confirmed if requested) or telephone number and to the
individual or department specified by such Party in Part III
of the Schedule. Unless otherwise specified, any notice,
instruction or other communication given in accordance with
this Section 8.4 shall be effective upon receipt.
8.5 Termination. Each of the Parties may terminate the
Agreement at any time by seven (7) days' prior written
notice to the other Party delivered as prescribed in Section
8.4, and termination shall be effective at the end of such
seventh day; provided, however, that any such termination
shall not affect any outstanding Currency Obligations, and
the provisions of the Agreement shall continue to apply
until all the obligations of each Party to the other under
the Agreement have been fully performed.
8.6 Severability. In the event any one or more of the
provisions contained in the Agreement should be held
invalid, illegal or unenforceable in any respect under the
law of any jurisdiction, the validity, legality and
enforceability of the remaining provisions contained in the
Agreement under the law of such jurisdiction, and the
validity, legality and enforceability of such and any other
provisions under the law of any other jurisdiction shall not
in any way be affected or impaired thereby. The Parties
shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
8.7 No Waiver. No indulgence or concession granted by a
Party and no omission or delay on the part of a Party in
exercising any right, power or privilege under the Agreement
shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
8.8 Master Agreement. Where one of the Parties to the
Agreement is domiciled in the United States, the Parties
intend that the Agreement shall be a master agreement, as
referred to in 11 U.S.C. Section 101(53B)(C) and 12 U.S.C.
Section 1821(e)(8)(D)(vii).
8.9 Time of Essence. Time shall be of the essence in the
Agreement.
8.10 Headings. Headings in the Agreement are for ease of
reference only.
8.11 Payments Generally. All payments to be made under the
Agreement shall be made in same day (or immediately
available) and freely transferable funds and, unless
otherwise specified, shall be delivered to such office of
such bank, and in favor of such account as shall be
specified by the Party entitled to receive such payment in
Part IV of the Schedule or in a notice given in accordance
with Section 8.4.
8.12 Amendments. No amendment, modification or waiver of the
Agreement will be effective unless in writing executed by
each of the Parties.
8.13 Credit Support. A Credit Support Document between the
Parties may apply to obligations governed by the Agreement.
If the Parties have executed a Credit Support Document, such
Credit Support Document shall be subject to the terms of the
Agreement and is hereby incorporated by reference in the
Agreement. In the event of any conflict between a Credit
Support Document and the Agreement, the Agreement shall
prevail, except for any provision in such Credit Support
Document in respect of governing law.
8.14 Adequate Assurances. If the Parties have so agreed in
Part XI of the Schedule, the failure by a Party to give
adequate assurances of its ability to perform any of its
obligations under the Agreement within two (2) Business Days
of a written request to do so when the other Party has
reasonable grounds for insecurity shall be an Event of
Default under the Agreement.
8.15 Correction of Confirmations. Unless either Party
objects to the terms contained in any Confirmation sent by
the other Party or sends a corrected Confirmation within
three (3) Business Days of receipt of such Confirmation, or
such shorter time as may be appropriate given the Value Date
of the FX Transaction, the terms of such Confirmation shall
be deemed correct and accepted absent manifest error. If the
Party receiving a Confirmation sends a corrected
Confirmation within such three (3) Business Days, or shorter
period, as appropriate, then the Party receiving such
corrected Confirmation shall have three (3) Business Days,
or shorter period, as appropriate, after receipt thereof to
object to the terms contained in such corrected
Confirmation.
SECTION 9. LAW AND JURISDICTION
9.1 Governing Law. The Agreement shall be governed by, and
construed in accordance with the laws of the jurisdiction
set forth in Part XII of the Schedule without giving effect
to conflict of laws principles.
9.2 Consent to Jurisdiction. (a) With respect to any
Proceedings, each Party irrevocably (i) submits to the
non-exclusive jurisdiction of the courts of the jurisdiction
set forth in Part XIII of the Schedule and (ii) waives any
objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives
any claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to object,
with respect to such Proceedings, that such court does not
have jurisdiction over such Party. Nothing in the Agreement
precludes either Party from bringing Proceedings in any
other jurisdiction nor will the bringing of Proceedings in
any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(b) Each Party irrevocably appoints the agent for service of
process (if any) specified with respect to it in Part XIV of
the Schedule. If for any reason any Party's process agent is
unable to act as such, such Party will promptly notify the
other Party and within thirty (30) days will appoint a
substitute process agent acceptable to the other Party.
9.3 Waiver of Jury Trial. Each Party irrevocably waives any
and all right to trial by jury in any Proceedings.
9.4 Waiver of Immunities. Each Party irrevocably waives, to
the fullest extent permitted by applicable law, with respect
to itself and its revenues and assets (irrespective of their
use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii)
jurisdiction of any courts, (iii) relief by way of
injunction, order for specific performance or for recovery
of property, (iv) attachment of its assets (whether before
or after judgment) and (v) execution or enforcement of any
judgment to which it or its revenues or assets might
otherwise be entitled in any Proceedings in the courts of
any jurisdiction and irrevocably agrees, to the extent
permitted by applicable law, that it will not claim any such
immunity in any Proceedings.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused the Agreement to
be duly executed by their respective authorized officers as of the date first
written above.
CARR FUTURES INC.
By /s/ Lawrence P. Anderson
-------------------------------
Name: Lawrence P. Anderson
Title: Executive Vice President
DEAN WITTER SPECTRUM STRATEGIC L.P.
By Demeter Management Corporation
General Partner
By /s/ Mark J. Hawley
-------------------------------
Name: Mark Hawley
Title: President
<PAGE>
SCHEDULE
Schedule to the International Foreign Exchange Master Agreement
dated as of August 1, 1997
between Dean Witter Spectrum Strategic L.P. ("Party A")
and Carr Futures Inc. ("Party B").
Part I. Scope of Agreement
The Agreement shall apply to all foreign exchange
transactions outstanding between any two Designated Offices
of the Parties on the Effective Date.
It shall be understood that Party A shall typically be
conducting its foreign exchange transactions under the
Agreement through its Trading Advisors who shall be
disclosed by Party A to Party B from time to time by
notice. The Trading Advisors will act as Party A's agents
for all purposes hereunder until further notice.
Part II. Designated Offices
Each of the following shall be a Designated Office:
Party A:
c/o Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Attn: Robert E. Murray
Telephone No.: (212) 392-7404
Facsimile No.: (212) 392-2804
Party B:
Carr Futures Inc.
One World Trade Center
92nd Floor
New York, NY 10048
Attn: David Mangold
Telephone No.: (212) 453-6365
Facsimile No.: (212) 453-6361
Part III. Notices:
If sent to Party A:
Address: c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Telephone Number: (212) 392-7404
Facsimile Number: (212) 392-2804
Name of Individual or Department to whom Notices are to be
sent: Robert E. Murray
With copies to Party A's designated Trading Advisors.
If sent to Party B:
Address: Carr Futures Inc.
One World Trade Center
New York, New York 10048
Telephone Number: (212) 453-6365
Facsimile Number: (212) 453-6361
Name of Individual or Department to whom Notices are to be
sent: David Mangold
Part IV. Payment Instructions
Name of Bank and Office, Account Number and Reference with
respect to relevant Currencies:
<TABLE>
<CAPTION>
Party A Party B
<S> <C>
Citibank, N.A. Harris Trust & Savings Bank, Chicago
ABA: 021-000089 ABA: 071.000.288
Account Name: Dean Witter For the Account of Carr Futures Inc.,
Reynolds, Inc. Chicago Customer Segregated
Account No. 40611164 Account No. 203-908-9
FFC: Dean Witter Spectrum FFC: Dean Witter Spectrum
Strategic L.P., Strategic L.P.,
Account # (As Party B is notified Account # (As Party A is notified
from time to time) from time to time)
</TABLE>
Part V. Netting
A. Settlement Netting Offices
Each of the following shall be a Settlement Netting Office:
Party A: Same as in Part II.
Party B: Same as in Part II.
B. Novation Netting Offices
Each of the following shall be a Novation Netting Office:
Party A: Same as in Part V-A.
Party B: Same as in Part V-A.
C. Matched Pair Novation Netting Offices
Each of the following shall be a Matched Pair Novation
Netting Office:
Party A: Not Applicable.
Party B: Not Applicable.
Part VI. Cash Settlement of FX Transactions
The following provision shall apply:
The definition of FX Transaction in Section 1 shall include
foreign exchange transactions for the purchase and sale of
one Currency against another but which shall be settled by
the delivery of only one Currency based on the difference
between exchange rates as agreed by the Parties as
evidenced in a Confirmation. Section 3.1 is modified so
that only one Currency shall be delivered for any such FX
Transaction in accordance with the formula agreed by the
Parties. Section 5.1(b)(i)(A) is modified so that the
Close-Out Amount for any such FX Transaction for which the
cash settlement amount has been fixed on or before the
Close-Out Date pursuant to the terms of such FX Transaction
shall be equal to the Currency Obligation arising therefrom
(increased by adding interest in the manner provided in
clause (A)(2) if the Value Date precedes the Close-Out
Date) and for any such FX Transaction for which the cash
settlement amount has not yet been fixed on the Close-Out
Date pursuant to the terms of such FX Transaction, the
Close-Out Amount shall be as determined by the
Non-Defaulting Party in good faith and in a commercially
reasonable manner.
Part VII. Base Currency
Party A's Base Currency is the United States dollar.
Party B's Base Currency is the United States dollar.
Part VIII. Threshold Amount
For purposes of clause (x) of the definition of Event of
Default:
Party A's Threshold Amount is 3% of Party A's equity
capital as evidenced by Party A's latest financial
statements.
Party B's Threshold Amount is 3% of Party B's equity
capital as evidenced by Party B's latest financial
statements.
Part IX. Additional Events of Default
The following provisions which are checked shall constitute
Events of Default:
None.
[ ] (a) occurrence of garnishment or provisional
garnishment against a claim against the Defaulting
Party acquired by the Non-Defaulting Party. The
automatic termination provisions of Section 5.1
[shall] [shall not] apply to either Party that is
a Defaulting Party in respect of this Event of
Default.
[ ] (b) suspension of payment by the Defaulting
Party or any Credit Support provider in accordance
with the Bankruptcy Law or the Corporate
Reorganization Law in Japan. The automatic
termination provision of Section 5.1 [shall]
[shall not] apply to either Party that is a
Defaulting Party in respect of this Event of
Default.
[ ] (c) disqualification of the Defaulting Party or
any Credit Support Provider by any relevant bill
clearing house located in Japan. The automatic
termination provision of Section 5.2 [shall][shall
not] apply to either Party that is a Defaulting
Party in respect of this Event of Default.
Part X. Automatic Termination
The automatic termination provision of Section 5.1 shall
not apply to Party A as Defaulting Party in respect of
clause (ii), (iii) or (iv) of the definition of Event of
Default.
The automatic termination provision of Section 5.1 shall
not apply to Party B as Defaulting Party in respect of
clause (ii), (iii) or (iv) of the definition of Event of
Default.
Part XI. Adequate Assurances
Adequate Assurances under Section 8.14 shall apply to the
Agreement.
Part XII. Governing Law
In accordance with Section 9.1 of the Agreement, the
Agreement shall be governed by the laws of the State of New
York.
Part XIII. Consent to Jurisdiction
In accordance with Section 9.2 of the Agreement, each Party
irrevocably submits to the non-exclusive jurisdiction of
the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New
York City.
Part XIV. Agent for Service of Process
Not applicable.
Part XV. Certain Regulatory Representations
A. The following FDICIA representation shall not apply:
1. Party A represents and warrants that it qualifies as a
"financial institution" within the meaning of the
Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") by virtue of being a:
[ ] broker or dealer within the meaning of FDICIA;
[ ] depository institution within the meaning of
FDICIA;
[ ] futures commission merchant within the meaning
of FDICIA;
[ ] "financial institution" within the meaning of
Regulation EE (see below).
2. Party B hereby represents and warrants that it
qualifies as a "financial institution" by virtue of
being a:
[ ] broker or dealer within the meaning of FDICIA;
[ ] depository institution within the meaning of
FDICIA;
[ ] futures commission merchant within the meaning
of FDICIA;
[ ] "financial institution" within the meaning of
Regulation EE (see below).
3. A Party representing that it is a "financial
institution" as that term is defined in 12 C.F.R.
Section 231.3 of Regulation EE issued by the Board of
Governors of the Federal Reserve System ("Regulation
EE") represents that:
(a) it is willing to enter into financial
contracts" as a counterparty "on both sides
of one or more financial markets" as those
terms are used in Section 231.3 of
Regulation EE; and
(b) during the 15-month period immediately
preceding the date it makes or is deemed to
make this representation, it has had on at
least one (1) day during such period, with
counterparties that are not its affiliates
(as defined in Section 231.2(b) of
Regulation EE) either:
(i) one or more financial contracts of a
total gross notional principal
amount of $1 billion outstanding; or
(ii) total gross mark-to-market positions
(aggregated across counterparties) of
$100 million; and
(c) agrees that it will notify the other Party
if it no longer meets the requirements for
status as a financial institution under
Regulation EE.
4. If both Parties are financial institutions in
accordance with the above, the Parties agree that the
Agreement shall be a netting contract, as defined in 12
U.S.C. Section 4402(14), and each receipt or payment or
delivery obligation under the Agreement shall be a
covered contractual payment entitlement or covered
contractual payment obligation, respectively, as
defined in FDICIA.
B. The following ERISA representation shall apply:
Each Party represents and warrants that it is neither (i)
an "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974 which
is subject to Part 4 of Subtitle B of Title I of such Act;
(ii) a "plan" as defined in Section 4975(e)(1) of the
Internal Revenue Code of 1986; nor (iii) an entity the
assets of which are deemed to be assets of any such
"employee benefit plan" or "plan" by reason of the U.S.
Department of Labor's plan asset regulation, 29 C.F.R.
Section 2510.3-101.
C. The following CFTC eligible swap participant representation
shall apply:
Each Party represents and warrants that it is an "eligible
swap participant" under, and as defined in, 17 C.F.R.
Section 35.1.
Part XVI. Additional Covenants
The following covenant[s] shall apply to the Agreement:
A. Party B covenants and agrees that when Party A or an agent
for Party A requests Party B to an FX Transaction, Party B
will do a back-to-back principal trade and the price of the
FX Transaction to Party A will be the same price at which
Party B effects its back-to-back trade with its
counterparty, and Party B will not profit from any mark-up
or spread on the FX Transaction.
B. With respect to each FX Transaction, Party A shall pay to
Party B a round-turn fee as follows. For FX Transactions
not having a Party B-imposed forward date, the fee shall be
$4.30 per round-turn ($2.15 per side) for each $85,000
equivalent of the Currency in the FX Transaction. For FX
Transactions with a Party B-imposed forward date
restriction, the fee shall be $5.00 per round-turn ($2.50
per side) for each $135,000 equivalent of the Currency in
the FX Transaction.
C. Party A shall post margin with Party B with respect to all
FX Transactions in an amount equal to 3.0% of the value of
such FX Transactions on major currencies and 5.0% of the
value of such FX Transactions on minor currencies. All
calls for margin shall be made by Party B orally or by
written notice to Dean Witter Reynolds, and each such call
for margin shall be met by Party A within three hours after
Dean Witter Reynolds has received such call by wire
transfer (by federal bank wire system) to the account of
Party B. Party B shall accept as margin any instrument
deemed acceptable as margin under the rules of the Chicago
Mercantile Exchange. Upon oral or written request by Dean
Witter Reynolds, Party B shall, within three hours after
receipt of any such request, wire transfer (by federal bank
wire system) to Dean Witter Reynolds for Party A's account
any margin funds held by Party B in excess of the margin
requirements specified hereby. Notwithstanding Part VI
above, all payments, unless otherwise agreed to, shall be
paid in U.S. dollars.
EXHIBIT 10.07
ESCROW AGREEMENT
September 30, 1994
Chemical Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Attn: Mr. Paul Gilkeson
Re: Dean Witter Spectrum Series Escrow Account
Gentlemen:
In accordance with arrangements made by Demeter Management
Corporation, a Delaware corporation (the "General Partner"), on behalf of Dean
Witter Spectrum Balanced L.P. ("Spectrum Balanced"), Dean Witter Spectrum
Strategic L.P. ("Spectrum Strategic"), and Dean Witter Spectrum Technical L.P.
("Spectrum Technical"), each a Delaware corporation (the "Partnerships" or,
individually, a "Partnership"), and Dean Witter Reynolds Inc., the selling agent
for the Partnerships (the "Depositor"; the Partnerships and the Depositor being
herein sometimes collectively referred to as the "Parties" or, individually, as
a "Party"), the Depositor shall: (i) deliver to you, as Escrow Agent, all
subscription funds (by the direct transfer of immediately available funds into a
non-interest bearing escrow account established by you for the Partnerships, for
investment in your interest bearing money market account) received by the
Depositor from each subscriber ("Subscriber" or, collectively, the
"Subscribers") during the "Initial Offering Period" and thereafter during the
"Continuing Offering" (as described in the Partnerships' Prospectus, as the same
may be updated, supplemented, and amended from time to time (the "Prospectus"))
in connection with the offering to the public of Units of Limited Partnership
Interest of the Partnerships (the "Units") and (ii) also promptly transmit to
the General Partner a complete report of all funds deposited with you during the
Initial Offering Period and Continuing Offering. You, as Escrow Agent, shall
hold such subscription funds together with any additions, substitutions, or
other financial instruments in which such funds may be invested or for which
such funds may be exchanged (collectively referred to herein as the "Fund"), IN
ESCROW upon the following terms:
1. (a) Following receipt by you of written notice from the
General Partner that the General Partner has rejected a Subscriber's
subscription, in whole or in part, during either the Initial Offering Period or
Continuing Offering, you shall transmit to the Depositor, as soon as practicable
but in no event later than three business days following receipt by you of such
notice, the amount of such Subscriber's subscription funds that shall have been
deposited with you hereunder and that the General Partner shall have notified
you have been rejected and any interest earned on the Fund and allocated to the
rejected amount of such subscription in accordance with Section 2 hereof. You
shall at the same time give notice to the Depositor of the amount of aggregate
subscription funds and/or interest so returned.
(b) On the second business day before the scheduled day of
each closing, the General Partner shall notify you of the portion of the Fund
that represents subscriptions to be accepted by the General Partner for each
Partnership. Upon receipt by you of joint written notice from the General
Partner and the Depositor on the date of each such closing to the effect that
all of the terms and conditions with respect to the release of subscription
funds from escrow set forth in the Prospectus have been fulfilled, you shall
promptly pay and deliver to each of the Partnerships that portion of the Fund
specified for such Partnership in the General Partner's prior instructions
(excluding any interest earned on the Fund and funds relating to rejected
subscription); provided, however, that in the case of the Initial Closing (as
defined in the Prospectus) you will only pay and deliver funds to the
Partnerships after a minimum of 400,000 Units of each of Spectrum Strategic and
Spectrum Technical and 200,000 Units of Spectrum Balanced (1,000,000 Units in
the aggregate) have been subscribed for in the aggregate and not rejected by the
General Partner and a minimum amount of $10,000,000 has cleared the U.S. banking
system (the subscription for each Unit to be $10.00 at the Partnerships' Initial
Closing and at each subsequent closing, if any, at 100% of the net asset value
per Unit as of the close of business on the day of the closing).
(c) On the date of each closing, or as soon thereafter as
practicable, you shall transmit to the Depositor an amount representing: (i) for
each Subscriber whose subscription shall be accepted by the General Partner in
whole or in part, any interest earned on the Fund and allocated to the accepted
portion of such Subscriber's subscription in accordance with Section 2 hereof,
and (ii) for each Subscriber whose subscription shall have been rejected by the
General Partner in whole or in part but whose subscription funds shall not have
been previously returned to the Depositor by you in accordance with Section 1(a)
hereof, such Subscriber's subscription funds that shall have been deposited with
you hereunder and that shall have been rejected by the General Partner, and any
interest earned on the Fund and allocated to the rejected amount of such
subscription in accordance with Section 2 hereof. You shall at the same time
give notice to the Depositor of the aggregate amount of subscription funds
and/or interest so returned.
(d) Notwithstanding Section 1(a) hereof, upon receipt by you
of written notice from the General Partner that a Subscriber has been rejected
or because such Subscriber has provided bad funds in the form of a bad check,
draft, or otherwise to the Depositor), you shall transmit to the Depositor,
within three business days following receipt by you of such notice, the amount
of subscription funds deposited with you hereunder relating to that amount (the
portion of such Subscriber's subscription for which good funds have not been
provided) together with any interest earned on the Fund and allocated to such
portion of such a subscription in accordance with Section 2 hereof to the date
of such return, and shall immediately notify the General Partner of the return
of such funds.
2. You shall hold the Fund (including any interest earned thereon) for
the account of the Partnerships pending delivery to either the Partnerships or
the Depositor, pursuant to Paragraphs 1 or 3 hereof, as the case may be. On each
day that subscription funds are transferred to you hereunder in immediately
available funds and receipt is confirmed before 2:00 P.M., New York City time,
you shall immediately invest such subscription funds solely in your interest
bearing money market account. If subscription funds are transferred to you in
immediately available funds and receipt is confirmed after 2:00 P.M., New York
City time, you shall so invest such funds on the next day. Interest earned on
the Fund shall be allocated by the Depositor among the Subscribers
proportionately based on (A) the amount of their respective subscriptions on
deposit in the Fund and (B) the period of time from the date that their
respective subscriptions shall have been deposited in the Fund to the earlier of
the delivery of the Fund to the Partnerships at a closing or the Depositor in
accordance with Sections 1 or 3 hereof, as the case may be.
3. If, during the Partnerships' Initial Offering Period, you are
notified in writing jointly by the Parties that subscriptions for fewer than
400,000 Units of each of Spectrum Strategic and Spectrum Technical and 200,000
Units of Spectrum Balanced (1,000,000 Units in the aggregate) have been
subscribed for and not rejected by the General Partner, that the offering of
Units has been terminated, and that no Initial Closing will be held, you shall
transmit to the Depositor, as soon as practicable but in no event later than
three business days after receipt by you of such notice, an amount representing
the full amount of all subscription funds that shall have been deposited with
you hereunder, together with any interest earned on the Fund in accordance with
Section 2 hereof. You shall at the same time give notice to the Depositor of the
aggregate amounts of subscription funds and/or interest so returned.
4. The Parties further agree with you as follows:
(a) Your duties and responsibilities shall be limited solely
to those expressly set forth in this Agreement and are ministerial in nature.
You shall neither be subject to nor obliged to recognize any other agreement
between, or other direction or instruction of, any or all of the Parties or any
Subscriber even though reference thereto may be made herein; provided, however,
that with your written consent, this Agreement may be amended at any time or
times by an instrument in writing signed by the Parties.
(b) You are authorized, in your sole discretion, to disregard
any and all notices or instructions given by any of the Parties or by any other
person, firm, or corporation, except only such notices or instructions as are
hereunder provided for and orders or process of any court entered or issued with
or without jurisdiction. If the Fund or any part thereof is at any time
attached, garnished, or levied upon under any court order or in case the
payment, assignment, transfer, conveyance, or delivery of the Fund shall be
stayed or enjoined by any court order, or in case any order, judgment, or decree
shall be made or entered by any court affecting the Fund or any part thereof,
then and in any such event you are authorized, in your sole discretion, to rely
upon and comply with any such order, writ, judgment, or decree that you are
advised by legal counsel of your own choosing is binding upon you, and if you
comply with any such order, writ, judgment, or decree you shall not be liable to
any of the Parties or to any other person, firm, or corporation by reason of
such compliance even though such order, writ, judgment, or decree may be
subsequently reversed, modified, annulled, set aside, or vacated.
(c) You shall be fully protected in relying upon any written
notice, demand, certificate, document, or instrument believed by you in good
faith to be genuine and to have been signed or presented by the proper person or
persons or Party or Parties. The Parties shall provide you with a list of
officers and employees who shall be authorized to deliver instructions
hereunder. You shall not be liable for any action taken or omitted by you in
connection herewith in good faith and in the exercise of your own best judgment.
(d) Should any dispute arise with respect to the delivery,
ownership, right of possession, and/or disposition of the subscription funds
deposited with you hereunder, or should any claim be made upon any such
subscription funds by a third party, you, upon receipt of written notice of such
dispute by any of the Parties or by a third party, are authorized and directed
to retain in your possession all or any of such subscription funds until such
dispute shall have been settled either by mutual agreement of the parties
involved or by final order, decree, or judgment of any court in the United
States.
(e) If for any reason funds are deposited in the escrow
account other than by transfer of immediately available funds, you shall proceed
as soon as practicable to collect checks, drafts, and other collection items at
any time deposited with you hereunder. All such collections shall be subject to
the usual collection agreement regarding items received by your commercial
banking department for deposit or collection; provided, however, that if any
check, draft, or other collection item at any time deposited with you hereunder
is returned to you as being uncollectable (except by reasons of an account
closing), you shall attempt a second time to collect such item before returning
such item to the Depositor as uncollectable. Subject to the foregoing, you shall
promptly notify the Parties of any uncollectable check, draft, or other
collection item deposited with you hereunder and shall promptly return such
uncollectable item to the Depositor, in which case you shall not be liable to
pay any interest on the subscription funds represented by such uncollectable
item. In no event, however, shall you be required or have a duty to take any
legal action to enforce payment of any check or note deposited hereunder.
(f) You shall not be responsible for the sufficiency or
accuracy of the form, execution, validity, or genuineness of documents now or
hereafter deposited with you hereunder, or for any lack of endorsement thereon
or for any description therein, nor shall you be responsible or liable in any
respect on account of the identity, authority, or rights of the persons
executing or delivering or purporting to execute or deliver any such document,
or endorsement or this Agreement. You shall not be liable for any loss sustained
as a result of any investment made pursuant to the instructions of the Parties
or as a result of any liquidation of an investment prior to its maturity or the
failure of the Parties to give you any instructions to invest or reinvest the
Fund or any earnings thereon.
(g) All notices required or desired to be delivered hereunder
shall be in writing and shall be effective when delivered personally on the day
delivered, or when given by registered or certified mail, postage prepaid,
return receipt requested, on the day of receipt, addressed as follows (or to
such other address as the party entitled to notice shall hereafter designate in
accordance with the terms hereof):
if to a Partnership, the Partnerships or the General Partner:
Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mr. Mark J. Hawley
President
if to the Depositor:
Dean Witter Reynolds Inc.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mr. Mark J. Hawley
Senior Vice-President
in either case with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attn: Edwin L. Lyon, Esq.
if to you:
Chemical Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Attn: Mr. Paul Gilkeson
Whenever, under the terms hereof, the time for giving a notice or performing an
act falls on a Saturday, Sunday, or legal holiday, such time shall be extended
to the next business day.
(h) The Depositor agrees to indemnify, defend, and hold you
harmless from and against, any and all loss, damage, tax, liability, and expense
that may be incurred by you arising out of or in connection with your duties
hereunder, except as caused by your gross negligence, bad faith, or willful
misconduct, including the legal costs and expenses of defending yourself against
any claim or liability in connection with your performance hereunder.
(i) You shall be paid by the Depositor for your services a fee
of $3,000 in advance for each Fee Period (as defined below) and such other fees
relating to the administration of the Fund that shall be agreed upon by you and
the General Partner, including, but not limited to, a fee for (a) investment of
funds and (b) transmission of funds due to a rejection of a Subscriber pursuant
to Section 1(d) hereof. "Fee Period" shall mean each consecutive twelve month
period during the term of this Agreement with the first such period beginning
from the date of this Agreement.
(j) It is understood that you may at any time resign hereunder
as Escrow Agent by giving written notice of your resignation to the Parties at
their address set forth above at least 20 days prior to the date specified for
such resignation to take effect, and upon the effective date of such
resignation, all property then held by you hereunder shall be delivered by you
to such person as may be designated jointly by the Parties in writing, whereupon
all your obligations hereunder shall cease and terminate. If you shall resign
prior to the conclusion of any Fee Period you shall pay to the Depositor an
amount equal to the product of $3,000 and a fraction, the numerator of which
shall be the number of days remaining in the Fee Period and the denominator of
which shall be 365. If no successor Escrow Agent has been appointed or has
accepted such appointment by such date, all your obligations hereunder shall
nevertheless cease and terminate. Your sole responsibility thereafter shall be
to keep safely all property then held by you and to deliver the same to a person
designated by the Parties hereto or in accordance with the directions of a final
order or judgment of a court of competent jurisdiction.
5. This Agreement shall be governed by and construed in accordance with
the law of the State of New York and any action brought hereunder shall be
brought in the courts of the State of New York, sitting in the County of New
York.
6. The undersigned Escrow Agent hereby acknowledges and agrees to hold,
deal with, and dispose of, the Fund (including any interest earned thereon) and
any other property at any time held by the Escrow Agent hereunder in accordance
with this Agreement.
If the foregoing Agreement is satisfactory to you, please so indicate by signing
at the place provided below.
Sincerely,
DEAN WITTER SPECTRUM BALANCED L.P.
By: Demeter Management Corporation
By: /s/ Mark J. Hawley
--------------------------------
Mark J. Hawley
President
DEAN WITTER SPECTRUM STRATEGIC L.P.
By: Demeter Management Corporation
By: /s/ Mark J. Hawley
--------------------------------
Mark J. Hawley
President
DEAN WITTER SPECTRUM TECHNICAL L.P.
By: Demeter Management Corporation
By: /s/ Mark J. Hawley
--------------------------------
Mark J. Hawley
President
DEAN WITTER REYNOLDS INC.
By: /s/ Mark J. Hawley
--------------------------------
Mark J. Hawley
Senior Vice-President
Accepted:
CHEMICAL BANK
By: /s/ P.J. Gilkeson
--------------------------------
P.J. Gilkeson
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Spectrum Strategic L.P. and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 63,919,054
<SECURITIES> 0
<RECEIVABLES> 2,001,298<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,445,333<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 71,445,333<F3>
<SALES> 0
<TOTAL-REVENUES> 13,096,775<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,081,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,015,095
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,015,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,015,095
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscription receivable of $1,796,051 and interest
receivable of $205,247.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $5,299,335 and net option
premiums of $225,646.
<F3>Liabilities include redemptions payable of $398,976, accrued
brokerage fees of $405,606,and accrued management fees of
$218,976.
<F4>Total revenue includes realized trading revenue of $7,945,575, net
change in unrealized of $2,771,722 and interest income of $2,379,478.
</FN>
</TABLE>
