-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MN3lrNsh2wayAJhXhTQnyYrIo3DI75bO1Uzel2jqH8Wt7QPlvx9TbD7uhjNRR9yq kcCW4JYdhkjqv7r+7ebumg== 0000912057-01-007627.txt : 20010316 0000912057-01-007627.hdr.sgml : 20010316 ACCESSION NUMBER: 0000912057-01-007627 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER SPECTRUM SELECT LP CENTRAL INDEX KEY: 0000873799 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133619290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-90467 FILM NUMBER: 1568553 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CNTR - 62ND FLR STREET 2: C/O DEMETER MANAGEMENT CORP CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123928899 MAIL ADDRESS: STREET 1: C/O DEMETER MANAGEMENT CORP STREET 2: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19980507 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN SELECT FUTURES FUND LP DATE OF NAME CHANGE: 19930328 POS AM 1 a2041380zposam.txt POS AM As filed with the Securities and Exchange Commission on March 14, 2001 Registration No. 333-90467 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT under THE SECURITIES ACT OF 1933 --------------------- MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. (Exact name of registrant as specified in charter document) Delaware 6799 13-3619290 (State of Organization (Primary Standard Industrial (I.R.S. Employer of Issuer) Classification Code Number) Identification Number)
--------------------- Two World Trade Center, 62nd Floor New York, New York 10048 (212) 392-8899 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Robert E. Murray DEMETER MANAGEMENT CORPORATION Two World Trade Center, 62nd Floor New York, New York 10048 (212) 392-8899 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies of communications to: Edwin L. Lyon, Esq. Isaac Finkle, Esq. Cadwalader, Wickersham & Taft Dean Witter Reynolds Inc. 1201 F Street, N.W., Suite 1100 Two World Trade Center, 65th Floor Washington, D.C. 20004 New York, New York 10048 (202) 862-2200 (212) 392-5530
--------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. --------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / --------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which is a part of this Registration Statement is a combined prospectus and includes all the information currently required in a prospectus relating to the securities covered by Registration Statement Nos. 333-47829 and 333-68773 previously filed by Registrant. This Registration Statement, which relates to 5,991,288.908 unsold Units of Limited Partnership Interest of the Registrant as of January 31, 2000, also constitutes a Post-Effective Amendment to Registration Statement Nos. 333-47829 and 333-68773. --------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. CROSS REFERENCE SHEET
Item No. Registration Item Location in Prospectus - -------- ---------------------------------------------- ----------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....... Facing Page; Front Cover Pages. 2. Inside Front and Outside Back Cover Pages of Prospectus................................... Inside Front Cover Page; Table of Contents. 3. Summary Information, Risk Factors, and Ratio of Earnings to Fixed Charges................. Summary; Risk Factors; Description of Charges; Use of Proceeds; The General Partner; The Commodity Brokers. 4. Use of Proceeds............................... Use of Proceeds. 5. Determination of Offering Price............... Plan of Distribution. 6. Dilution...................................... Not Applicable. 7. Selling Security Holders...................... Not Applicable. 8. Plan of Distribution.......................... Plan of Distribution. 9. Description of Securities to be Registered.... The Limited Partnership Agreements. 10. Interests of Named Experts and Counsel........ Not Applicable. 11. Information with Respect to the Registrant (a) Description of Business.................. Summary; Risk Factors; Use of Proceeds; The Trading Advisors; The Futures, Options and Forwards Markets; The Limited Partnership Agreements. (b) Description of Property.................. Not Applicable. (c) Legal Proceedings........................ Litigation; The Trading Advisors. (d) Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters..................... Risk Factors. (e) Financial Statements..................... Independent Auditors' Reports. (f) Selected Financial Data.................. Selected Financial Data. (g) Supplementary Financial Information...... Selected Financial Data. (h) Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. Management's Discussion and Analysis of Financial Condition and Results of Operations. (i) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. Not Applicable. (j) Quantitative and Qualitative Disclosures About Market Risk....................... Quantitative and Qualitative Disclosures About Market Risk. (k) Directors and Executive Officers......... The General Partner. (l) Executive Compensation................... Summary; Conflicts of Interest; Fiduciary Responsibility; Description of Charges; Risk Factors; The Trading Advisors; The General Partner; The Commodity Brokers. (m) Security Ownership of Certain Beneficial Owners and Management................... The General Partner; Independent Auditors' Reports. (n) Certain Relationships and Related Transactions............................ Summary; Conflicts of Interest; Fiduciary Responsibility; Description of Charges; Risk Factors; The Trading Advisors; The General Partner; The Commodity Brokers. 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................................. Fiduciary Responsibility.
EXPLANATORY STATEMENT The Prospectus contained in this Registration Statement relates not only to 5,991,288.908 Units of Limited Partnership Interest of Morgan Stanley Dean Witter Spectrum Select L.P. remaining unsold as of January 31, 2001 from Registration Statement Nos. 333-47829, 333-68773, and 333-90467, but to: (i) 8,120,275.267 Units of Limited Partnership Interest of Morgan Stanley Dean Witter Spectrum Technical L.P. remaining unsold as of January 31, 2001 from Registration Statement Nos. 33-80146, 333-00494, 333-3222, 333-47831, and 333-68779; (ii) 7,793,381.537 Units of Limited Partnership Interest of Morgan Stanley Dean Witter Spectrum Strategic L.P. remaining unsold as of January 31, 2001 from Registration Statement Nos. 33-80146, 333-00494, 333-3222, and 333-90487; (iii) 5,796,806.006 Units of Limited Partnership Interest of Morgan Stanley Dean Witter Spectrum Global Balanced L.P. remaining unsold as of January 31, 2001 from Registration Statement Nos. 33-80146, 333-00494, and 333-3222, and 333-90475; (iv) 10,208,135.856 Units of Limited Partnership Interest of Morgan Stanley Dean Witter Spectrum Currency L.P. remaining unsold as of January 31, 2001 from Registration Statement No. 333-90485; and (v) 6,699,585.629 Units of Limited Partnership Interest of Morgan Stanley Dean Witter Spectrum Commodity L.P. remaining unsold as of January 31, 2001 from Registration Statement No. 333-90483. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION: MARCH 14, 2001 MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
NET MAXIMUM ASSET AVAILABLE VALUE UNITS PER UNIT -------------- --------- $ MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. ............ 6,111,580.368 23.57 MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. ......... 8,328,397.160 16.08 MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. ......... 7,884,728.947 10.61 MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. ... 5,851,746.747 16.26 MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. .......... 10,539,968.043 11.17 MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. ......... 6,722,392.938 7.85
Each partnership trades futures, forwards and options contracts pursuant to trading programs employed by the trading advisors for that partnership. You may purchase units as of the last day of each month. The price you pay for each unit will equal 100% of the net asset value per unit on the date of purchase. The total number of units available and the net asset value per unit for each partnership as of December 31, 2000 is set forth above. Minimum Initial Purchase...................... $5,000 or $2,000 (for IRAs only) in one or more partnerships Minimum Per Partnership....................... $1,000 Minimum Purchase for Existing Investors....... $500
Before you invest you will be required to represent and warrant that you meet applicable state minimum financial suitability standards. You are encouraged to discuss your investment with financial, legal and tax advisors before you invest. Your subscription funds will be held in escrow at The Chase Manhattan Bank, New York, New York until they are transferred to the partnership whose units you have purchased. THESE ARE SPECULATIVE SECURITIES. YOU COULD LOSE ALL OR SUBSTANTIALLY ALL OF YOUR INVESTMENT IN THE PARTNERSHIPS. READ THIS PROSPECTUS CAREFULLY AND CONSIDER THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9. IN PARTICULAR, YOU SHOULD BE AWARE THAT: - Each partnership's futures, forwards and options trading is speculative and trading performance has been, and is expected to be, volatile. - Each partnership's trading is highly leveraged, which accentuates the trading profit or trading loss on a trade. - Past performance is not necessarily indicative of future results. - You may not redeem your units until you have been an investor for at least six months. - If you redeem units within 24 months after they are purchased, you will pay a redemption charge except in defined circumstances. - Units will not be listed on an exchange and no other secondary market will exist for the units. - The fixed expenses of each partnership will require the partnership to earn annual net trading profits, after taking into account estimated interest income, of the following percentages of average annual net assets:
Without a With a 2% Redemption Charge Redemption Charge ----------------- ----------------- % % Spectrum Select............................ 6.25 8.29 Spectrum Technical......................... 6.00 8.04 Spectrum Strategic......................... 6.25 8.29 Spectrum Global Balanced................... 0.85 2.89 Spectrum Currency.......................... 2.60 4.64 Spectrum Commodity......................... 3.10 5.14
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN ANY ONE OF THESE POOLS NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. MORGAN STANLEY DEAN WITTER DEAN WITTER REYNOLDS INC. - , 2001 COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL. FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO EACH POOL BEGINNING AT PAGE - AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE - . THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THESE COMMODITY POOLS. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN ANY OF THESE COMMODITY POOLS, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, BEGINNING AT PAGE - . YOU SHOULD ALSO BE AWARE THAT EACH OF THESE COMMODITY POOLS MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR EACH POOL MAY BE EFFECTED. ------------------- TABLE OF CONTENTS PART ONE DISCLOSURE DOCUMENT
PAGE -------- Summary................................... 1 Risk Factors.............................. 9 Trading and Performance Risks........... 9 The partnerships' trading is speculative and volatile............ 9 The partnerships' trading is highly leveraged........................... 9 Options trading can be more volatile than futures trading................ 9 You should not rely on the past performance of a partnership in deciding to purchase units.......... 10 Spectrum Commodity is subject to greater risk of loss during periods of low inflation.................... 10 Market illiquidity may cause less favorable trade prices.............. 10 Trading on foreign exchanges presents greater risks to each partnership than trading on U.S. exchanges...... 10 The unregulated nature of the forwards markets creates counterparty risks that do not exist in futures trading on exchanges........................ 11 The partnerships are subject to speculative position limits......... 11 The partnerships could lose assets and have their trading disrupted if a commodity broker or others become bankrupt............................ 12 Partnership and Offering Risks.......... 12 Each partnership incurs substantial charges............................. 12 Incentive fees may be paid by a partnership even though the partnership sustains trading losses.............................. 12 Restricted investment liquidity in the units............................... 12 Each partnership's structure has conflicts of interest............... 12 An investment in units may not diversify an overall portfolio...... 13 Trading Advisor Risks................... 13 Reliance on the trading advisor(s) to trade successfully.................. 13
PAGE -------- Market factors may adversely influence the trading programs................ 13 Possible consequences of using multiple trading advisors for Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Currency............................ 13 Spectrum Global Balanced and Spectrum Commodity are single-advisor funds and lack the diversity of a multi-advisor fund.................. 13 Increasing the assets managed by a trading advisor may adversely affect performance......................... 13 Limited partners will not be aware of changes to trading programs......... 13 Limited term of management agreements may limit access to a trading advisor............................. 14 The annual incentive fee paid by Spectrum Commodity can create certain distortions regarding the share of the incentive fee borne by each investor....................... 14 Taxation Risks.......................... 14 Even though the partnerships do not intend to make distributions, you will be liable for taxes on your share of any trading profits and any other income of the partnerships in which you have invested............. 14 The partnerships' tax returns could be audited............................. 14 Conflicts of Interest..................... 14 Fiduciary Responsibility and Liability.... 17 Description of Charges.................... 19 Use of Proceeds........................... 26 The Spectrum Series....................... 29 Selected Financial Data................... 40 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 43 Quantitative and Qualitative Disclosures About Market Risk....................... 55 The General Partner....................... 64 The Trading Advisors...................... 69
(i)
PAGE -------- Exchange Right............................ 121 Redemptions............................... 122 The Commodity Brokers..................... 123 Litigation................................ 125 The Limited Partnership Agreements........ 126 Plan of Distribution...................... 129 Subscription Procedure.................... 131 Purchases by Employee Benefit Plans-- ERISA Considerations.................... 133 Material Federal Income Tax Considerations.......................... 134 State and Local Income Tax Aspects........ 140 Legal Matters............................. 140 Experts................................... 140 Where You Can Find More Information....... 141 PART TWO STATEMENT OF ADDITIONAL INFORMATION The Futures, Options, and Forwards Markets................................. 142 Potential Advantages...................... 146 Supplemental Performance Information............................. 158 Glossary of Terms......................... 189
PAGE -------- Financial Statements...................... F-1 Exhibit A - Form of Amended and Restated Limited Partnership Agreements............................ A-1 Annex A - Request for Redemption...... A-23 Exhibit B - Specimen Form of Subscription and Exchange Agreement and Power of Attorney................. B-1 Exhibit C - Subscription Agreement Update Form........................... C-1
(ii) THE DATE OF THIS PROSPECTUS IS MARCH - , 2001. SUMMARY Because this is a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and its exhibits before you decide to invest. MORGAN STANLEY DEAN WITTER SPECTRUM SERIES The Morgan Stanley Dean Witter Spectrum Series consists of six continuously offered limited partnerships, each organized in the State of Delaware:
PARTNERSHIPS DATE ORGANIZED - ------------ -------------------- Spectrum Select March 21, 1991 Spectrum Technical April 29, 1994 Spectrum Strategic April 29, 1994 Spectrum Global Balanced April 29, 1994 Spectrum Currency October 20, 1999 Spectrum Commodity July 31, 1997
The offices of each partnership are located at Two World Trade Center, 62nd Floor, New York, New York 10048, telephone (212) 392-8899. Each partnership provides the opportunity to invest in futures, forwards, and options contracts managed by an experienced, professional trading advisor(s). Since each partnership's assets are traded by different trading advisors, each employing a different trading program, you should review the specific information relating to each partnership and its trading advisors to better understand how a partnership may fit into your overall investment plan. If you decide to invest in more than one partnership, you may allocate your investment among any one or more of the partnerships and, after an initial six month holding period, you may shift your investment among one or more of the other Spectrum Series partnerships. A futures contract is an agreement to buy or sell a fixed amount of a commodity or other underlying product, instrument or index at a predetermined price at a specified time in the future. In order to secure its obligation to make or take delivery under a futures contract, the trader must deposit funds, referred to as margin, with the commodity broker through which it trades. An option on a futures contract gives the buyer of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract at the specified price within the specified period of time. Futures contracts and options on futures contracts are traded on U.S. and foreign exchanges. A forward contract is an agreement directly between two parties to buy or sell a fixed amount of an underlying product at an agreed price at an agreed date in the future. Forward contracts are not traded on exchanges, but rather are traded in the dealer markets. A partnership may take long positions in futures, forwards, and options contracts in which the partnership is obligated to take delivery of the underlying commodity, product, instrument or index. A partnership also may take short positions in those contracts in which the partnership has an obligation to deliver the underlying commodity, product, instrument or index. Futures, forwards, and options contracts are traded in a number of commodities, products, instruments, and indices, including foreign currencies, financial instruments, precious and industrial metals, energy products, agricultural commodities, stock indices and "soft" commodities like cotton and cocoa. For additional information on the futures, options, and forwards markets, see "Statement of Additional Information" beginning on page - . The investment objective of each partnership is to achieve capital appreciation and, to a lesser extent in the case of Spectrum Global Balanced, to provide investors with the opportunity to diversify a portfolio of traditional investments consisting of stocks and bonds. While the partnerships have the same overall investment objective, and many of their trading advisors trade in the same futures, forwards, and options 1 contracts, each trading advisor and its trading programs trades differently. Each partnership has a different mix of trading advisors and trading programs. You should review and compare the specifics of each partnership, its terms, and its trading advisors before selecting one or more partnerships in which to invest. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. Commencing June 1, 2001, this partnership will allocate its assets among four trading advisors: EMC Capital Management, Inc., Northfield Trading L.P., Rabar Market Research Inc., and Sunrise Capital Management, Inc. Prior to June 1, 2001, this partnership's assets were traded by three trading advisors: EMC, Rabar, and Sunrise. The trading advisors employ proprietary trading programs that seek to profit through the analysis of technical market information, such as analyzing actual daily, weekly and monthly price fluctuations, volume variations and changes in open interest. The trading advisors collectively trade futures, forwards, and options in a portfolio of agricultural commodities, energy products, foreign currencies, interest rates, precious and base metals, soft commodities, and stock indices. MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. This partnership currently allocates its assets among three trading advisors: Campbell & Company, Inc., Chesapeake Capital Corporation and John W. Henry & Company, Inc. The trading advisors employ proprietary trading programs that seek to identify and follow short to long-term trends through the analysis of technical market information. The trading advisors collectively trade futures, forwards, and options in a portfolio of agricultural commodities, energy products, foreign currencies, interest rates, precious and base metals, soft commodities, and stock indices. MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. This partnership currently allocates its assets among three trading advisors: Allied Irish Capital Management, Ltd., Blenheim Investments, Inc., and Eclipse Capital Management, Inc. The trading advisors collectively employ discretionary and systematic trading approaches that seek to profit through the analysis of fundamental and technical market information. The trading advisors collectively trade futures, forwards, and options in a portfolio of agricultural commodities, energy products, foreign currencies, interest rates, precious and base metals, stock indices, and soft commodities. MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. This partnership currently allocates its assets to a single trading advisor, RXR, Inc. RXR offers a balanced portfolio trading approach using futures, forwards, and options to gain long biased exposure to global stock markets and global bond markets, as well as long and short exposure to a component of managed futures contracts in agricultural commodities, energy products, foreign currencies, precious and base metals, and soft commodities. MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. This partnership currently allocates its assets between two trading advisors: John W. Henry & Company, Inc. and Sunrise Capital Partners, LLC. The trading advisors employ proprietary trading programs that seek to identify favorable price relationships between and among various global currency markets through the analysis of technical market information. The trading advisors collectively trade world currencies primarily in the forward dealer markets, but also in the futures and options markets. MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. This partnership currently allocates its assets to a single trading advisor, Morgan Stanley Dean Witter Commodities Management Inc. The trading advisor employs a proprietary trading approach that seeks to identify increasing price trends through the disciplined analysis of technical market information. The trading advisor trades futures and may trade forwards in a portfolio of agricultural commodities, precious and base metals, soft commodities, and energy products. 2 WHO MAY SUBSCRIBE INVESTMENT CONSIDERATIONS You should purchase units in a partnership only if you understand the risks involved in the investment and only if your financial condition permits you to bear those risks, including the risk of losing all or substantially all of your investment in the partnership. You should invest in the units only with the risk capital portion of your investment portfolio. MINIMUM INVESTMENT If you are a new investor in the Spectrum Series of partnerships, you must invest at least $5,000, unless you are investing through an IRA, in which case your minimum investment is $2,000. You may allocate your investment among any one or more of the partnerships in the Spectrum Series, but you must invest at least $1,000 in a partnership. Once you become an investor in any Spectrum Series partnership, you may increase that investment with an additional contribution of at least $500. If you are an investor in another limited partnership for which Demeter Management Corporation serves as the general partner and commodity pool operator, you may redeem your interest in that other partnership and use the proceeds to invest in any one or more of the Spectrum Series of partnerships. The general partner may, in its sole discretion, reject any subscription in whole or in part. FINANCIAL SUITABILITY Unless otherwise specified in the subscription agreement under "State Suitability Requirements," you must have either: a net worth of at least $75,000, exclusive of home, furnishings, and automobiles; or both a net worth of at least $30,000, exclusive of home, furnishings, and automobiles, and an annual income of at least $30,000. You should be aware, however, that certain states impose more restrictive suitability and/ or higher minimum investment requirements. Before you invest you will be required to represent and warrant that you meet the applicable state minimum financial suitability standard set forth in the subscription agreement, which may also require a greater minimum investment. LIMITED REVOCATION RIGHT After you subscribe for units in any Spectrum Series partnership, you will have limited rights to revoke your subscription. You may only revoke a subscription and receive a full refund of the subscription amount, plus any accrued interest, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley Dean Witter financial advisor. THE OFFERING OF UNITS THE SPECTRUM SERIES CONTINUOUS OFFERING Each partnership is continuously offering units of limited partnership interest for sale at monthly closings held as of the last day of each month. You can purchase units at a price equal to 100% of a partnership's month-end net asset value. The general partner calculates each partnership's net asset value per unit on a monthly basis by dividing the partnership's month-end net assets by the number of its month-end outstanding units. A partnership's net assets is its assets minus its liabilities. ESCROW TERMS During each partnership's continuous offering, your subscription will be transferred to, and held in escrow by, The Chase Manhattan Bank, New York, New York. Subscription funds held in escrow will be invested in the escrow agent's money market account and will earn interest at the rate then paid by the bank on that money market account. If the general partner accepts your subscription, the escrow agent will pay the subscription amount to the appropriate partnerships and pay any interest earned on those funds to Dean Witter. In turn, Dean Witter will credit your customer account with the interest. If the general partner rejects a subscription, your account will be credited in an amount equal to the rejected subscription amount, together with any interest earned on those funds while held in escrow. 3 SUMMARY OF RISK FACTORS YOU SHOULD CONSIDER - These are speculative securities. - You could lose all or substantially all of your investment in the partnerships. - Past performance is not necessarily indicative of future results. - Each partnership's futures, forwards and options trading is speculative and trading performance has been, and is expected to be, volatile. - Each partnership's trading is highly leveraged, which accentuates the trading profit or loss on a trade. - You may not redeem your units until you have been an investor for at least six months. - If you redeem units within 24 months after they are purchased, you will pay a redemption charge except in defined circumstances. - Units will not be listed on an exchange and no other secondary market will exist for the units. - Each partnership pays substantial charges and fees and must earn substantial trading profits in order to pay these expenses. - Profits earned by a partnership will be taxable to an investor even though the general partner does not intend to make any distributions. MAJOR CONFLICTS OF INTEREST - Because the general partner, Dean Witter, Morgan Stanley, Morgan Stanley International, and Morgan Stanley Dean Witter Commodities Management are affiliates, the fees and other compensation received by those parties and the other terms relating to the operation of the partnerships and the sale of units were not negotiated by an independent party. - Because your Morgan Stanley Dean Witter financial advisor receives a portion of the brokerage fees paid by the partnerships, your financial advisor has a conflict of interest in advising you in the purchase or redemption of units. - The trading advisors, commodity brokers and general partner may trade futures, forwards and options for their own accounts and, thus, they may compete with a partnership for positions. Also, the other commodity pools managed by the general partner and the trading advisors compete with the partnerships for positions. These conflicts can result in less favorable prices on the partnerships' transactions. THE GENERAL PARTNER The general partner of each partnership is Demeter Management Corporation, a Delaware corporation. The general partner is or has been the general partner of 35 commodity pools and currently operates 21 other commodity pools. As of December 31, 2000, the general partner managed approximately $1.4 billion of client assets. The general partner's main business office is located at Two World Trade Center, 62nd Floor, New York, New York 10048, telephone (212) 392-8899. THE COMMODITY BROKERS The commodity brokers for the partnerships are responsible for holding the partnerships' funds deposited with them as margin for trades. If the commodity broker is also a clearing broker, it will also be responsible for assuring that the partnerships' trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. Dean Witter is the non-clearing commodity broker for each partnership. As non-clearing commodity broker, Dean Witter holds each partnership's funds and provides margin funds to the clearing commodity brokers for the partnership's futures, forwards and options positions. Morgan Stanley & Co. Incorporated, an affiliate of the general partner, serves as the clearing commodity broker for each partnership, with the exception of trades on the London Metal Exchange, which are cleared by Morgan Stanley & Co. International Limited, also an affiliate of the general partner. In addition, Morgan Stanley & Co. Incorporated acts as the counterparty on all of the foreign currency forward trades for the partnerships. 4 ORGANIZATIONAL CHART Following is an organizational chart, which shows the relationships among the various parties involved with this offering. Except for the tradings advisors for Spectrum Select, Spectrum Technical, Spectrum Strategic, Spectrum Global Balanced, and Spectrum Currency, all parties are affiliates of Morgan Stanley Dean Witter & Co. Morgan Stanley Dean Witter & Co. wholly-owned wholly-owned 23 other commodity Dean Witter Demeter pools* general partnership Selling Agreement interest SELLING AGENT AND NON-CLEARING COMMODITY BROKER GENERAL PARTNER general partnership Customer Agreement interest Management Agreements Spectrum Select Spectrum Technical Spectrum Strategic Customer Agreement Spectrum Global Balanced Customer Agreement Management Agreements F/X Agreement Trading Advisors Carr Futures CLEARING COMMODITY BROKER
- --------- * Demeter presently serves as general partner for 21 other commodity pools. Dean Witter acts as the non-clearing commodity broker for all of the pools. Morgan Stanley acts as clearing commodity broker for all but one of the pools, and Morgan Stanley International serves as the clearing commodity broker for trades of such pools that take place on the London Metal Exchange. Dean Witter also serves as selling agent for all of the pools managed by Demeter. All of the pools, including the partnerships, are managed and traded independently of one another. 5 FEES TO BE PAID BY THE PARTNERSHIPS The partnerships pay the following monthly fees:
MANAGEMENT FEE BROKERAGE FEE (ANNUAL RATE) INCENTIVE FEE(1) (ANNUAL RATE) -------------- ---------------- ------------- % % % Spectrum Select 3 15 7.25 Spectrum Technical 2 or 3 or 4(2) 19 or 20(3) 7.25 Spectrum Strategic 3 15 7.25 Spectrum Global Balanced 1.25 15 4.60 Spectrum Currency 2 20 4.60 Spectrum Commodity 2.5 17.5 4.60
- --------- (1) Each partnership pays its trading advisors a monthly incentive fee, except Spectrum Commodity pays its trading advisor an annual incentive fee. (2) JWH receives a monthly management fee at a 2% annual rate. Campbell receives a monthly management fee at a 3% annual rate. Chesapeake receives a monthly management fee at a 4% annual rate. (3) Chesapeake receives a monthly incentive fee equal to 19% of any trading profits. Campbell and JWH each receive a monthly incentive fee equal to 20% of any trading profits. The management fee payable to each trading advisor and the brokerage fee payable to Dean Witter are based on a percentage of net assets and will be paid monthly regardless of a partnership's performance. Each partnership pays its trading advisor(s) an incentive fee only if trading profits are earned on the portion of net assets managed by the trading advisor. Trading profits represent the amount by which profits from futures, fowards, and options trading exceed losses after brokerage, management, and incentive fees have been paid. You should understand that, except in the case of Spectrum Global Balanced and Spectrum Commodity, each of which has only one trading advisor, a trading advisor may receive an incentive fee even though the partnership as a whole is not profitable. Neither you nor the partnerships will pay any selling commissions or continuing offering expenses in connection with the offering of units by the partnerships. Dean Witter will pay all costs incurred in connection with the continuing offering of units of each partnership and will pay the ordinary administrative expenses of each partnership. Each partnership will pay any extraordinary expenses it may incur. 6 BREAK EVEN ANALYSIS Following is a table that sets forth the fees and expenses that you would incur on an initial investment of $5,000 in each partnership and the amount that your investment must earn, after taking into account estimated interest income, in order to break even after one year and after more than two years. The fees and expenses applicable to each partnership are described above.
SPECTRUM SPECTRUM SPECTRUM SPECTRUM GLOBAL SPECTRUM SPECTRUM SELECT TECHNICAL STRATEGIC BALANCED CURRENCY COMMODITY -------- --------- --------- -------- -------- --------- $ $ $ $ $ $ Management Fee...................... 150.00 137.50 150.00 62.50 100.00 125.00 Brokerage Fee....................... 362.50 362.50 362.50 230.00 230.00 230.00 Less: Interest Income (1)........... (200.00) (200.00) (200.00) (250.00) (200.00) (200.00) Incentive Fee (2)................... -- -- -- -- -- -- Redemption Charge (3)............... 102.04 102.04 102.04 102.04 102.04 102.04 Amount of trading profits a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge................. 414.54 402.04 414.54 144.54 232.04 257.04 Trading profits as percentage of net assets that a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge............................ 8.29% 8.04% 8.29% 2.89% 4.64% 5.14% Amount of trading profits a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge................. 312.50 300.00 312.50 42.50 130.00 155.00 Trading profits as percentage of net assets that a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge... 6.25% 6.00% 6.25% 0.85% 2.60% 3.10%
- --------- (1) The partnerships do not directly invest in interest-bearing instruments. Instead, each partnership is paid interest by Dean Witter at the blended rate Dean Witter earns on its U.S. Treasury bill investments with all customer segregated funds, as if 80% (100% in the case of Spectrum Global Balanced) of the partnership's average daily net assets for the month were invested at that rate. The rate used in the calculations was estimated based upon current rates of approximately 5.00%. (2) Incentive fees are paid to a trading advisor only on trading profits on the assets of the partnership managed by that trading advisor. Trading profits are determined after deducting all partnership expenses attributable to the partnership assets managed by the trading advisor, other than any extraordinary expenses, and do not include interest income. Therefore, incentive fees will be zero at the partnership's breakeven point on the assets managed by the trading advisor. Further, there do not need to be trading profits to cover the redemption charge because the interest earned by the partnership during the year will exceed the redemption charge to the investor. Note, however, that because one trading advisor to a partnership could be profitable and earn an incentive fee while the other trading advisors are unprofitable such that the partnership has an overall trading loss, it is possible for a partnership to pay an incentive fee at a time when it has incurred overall losses. (3) Units redeemed at the end of one year from the date of purchase are generally subject to a 2% redemption charge; after two years there are no redemption charges. 7 REDEMPTION CHARGES INCURRED BY YOU You will pay a redemption charge of 2% of the net asset value of the units redeemed if you redeem within the first twelve months after the units were purchased, and 1% if you redeem units within the thirteenth through twenty-fourth months after the units were purchased. Units are not subject to a redemption charge after you have owned them for more than 24 months. You will not incur a redemption charge if you redeem units during the first 24 months after they were issued in the following circumstances: - If you purchase at least $500,000 of units. - If you redeem units immediately following notice of an increase in brokerage, management or incentive fees. - If you redeem units in connection with an exchange for units in another Spectrum Series partnership. - If you acquire units with the proceeds from the redemption of interests in a non-Spectrum Series partnership for which Demeter serves as the general partner, you will not be subject to a redemption charge on those units when they are redeemed. - If you previously redeemed units and paid a redemption charge or held those units for at least 24 months, you will not have to pay a redemption charge on subsequently purchased units provided they are purchased within 12 months of the redemption of the old units and the purchase price of the new units does not exceed the net proceeds received from the prior redemption. REDEMPTIONS Once you have been an investor in any Spectrum Series partnership for more than six months, you are permitted to redeem any part of your investment, even if subsequent purchases have been held for less than six months. However, you will pay a redemption charge of 2% of the net asset value redeemed if your redeemed units were purchased within 12 months of the date of redemption, and 1% if purchased within 13 to 24 months of the date of redemption. You will not be subject to a redemption charge after you have owned your units for more than 24 months. Unless you are redeeming your entire interest in a partnership, redemptions may only be made in whole units, with a minimum of 50 units required for each redemption. EXCHANGE RIGHT You may redeem units in any partnership after you have been an investor for six months and use the proceeds to purchase units in one or more of the other partnerships in the Spectrum Series at a price equal to 100% of the net asset value per unit, without incurring any redemption or other charge on the transaction. DISTRIBUTIONS The general partner currently does not intend to make any distribution of partnership profits. TAX CONSIDERATIONS Even though the general partner currently does not intend to make distributions, your allocable share of the trading profits and other income of the partnerships in which you invest will be taxable to you. The trading activities of each partnership, in general, generate capital gains and loss and ordinary income. 40% of any trading profits on U.S. exchange-traded contracts are taxed as short-term capital gains at your ordinary income tax rate, while 60% of such gains are taxed at your long-term capital gains tax rate. We expect that each partnership's trading gains from other contracts will be primarily short-term capital gains. This tax treatment applies regardless of how long you hold your units. You may deduct losses on units against capital gains income. You may deduct losses in excess of capital gains against ordinary income only to the extent of $3,000 per year. Consequently, you could pay tax on a partnership's interest income even though you have lost money on your units. 8 RISK FACTORS This section includes all of the principal risks that you will face with an investment in the partnerships. Each risk factor applies equally to each partnership, except where specifically noted. TRADING AND PERFORMANCE RISKS THE PARTNERSHIPS' TRADING IS SPECULATIVE AND VOLATILE. The rapid fluctuations in the market prices of futures, forwards and options makes an investment in the partnerships volatile. Volatility is caused by changes in supply and demand relationships; weather; agricultural, trade, fiscal, monetary and exchange control programs; domestic and foreign political and economic events and policies; and changes in interest rates. If a trading advisor incorrectly predicts the direction of prices, large losses may occur. As can be seen from the information in the performance capsules for the partnerships on pages - to - , each partnership has experienced volatility in its performance on both a monthly and an annual basis. THE PARTNERSHIPS' TRADING IS HIGHLY LEVERAGED. The trading advisors for each partnership use substantial leverage when trading, which could result in immediate and substantial losses. For example, if 10% of the face value of a contract is deposited as margin for that contract, a 10% decrease in the value of the contract would cause a total loss of the margin deposit. A decrease of more than 10% in the value of the contract would cause a loss greater than the amount of the margin deposit. The leverage employed by the partnerships in their trading can vary substantially from month to month and can be significantly higher or lower than the averages set forth below. As an example of the leverage employed by the partnerships, set forth below is the average of the underlying value of each partnership's month-end positions for the period January 2000 through December 2000, and, in the case of Spectrum Currency, for the period from its inception of trading in July 2000 through December 2000, compared to the average month-end net assets of the partnership during such periods, respectively. While the leverage employed on a trade will accentuate the trading profit or loss on that trade, one partnership's overall leverage as compared to another partnership's overall leverage does not necessarily mean that it will be more volatile than the other partnership. This can be seen by a review of the monthly rates of return for the partnerships on pages - to - . Spectrum Select 13.3 times net assets Spectrum Technical 12.6 times net assets Spectrum Strategic 7.7 times net assets Spectrum Global Balanced 7.1 times net assets Spectrum Currency 3.3 times net assets Spectrum Commodity 1.4 times net assets
OPTIONS TRADING CAN BE MORE VOLATILE THAN FUTURES TRADING. Each partnership may trade options on futures. Although successful options trading requires many of the same skills as successful futures trading, the risks are different. Successful options trading requires a trader to accurately assess near-term market volatility because that volatility is immediately reflected in the price of outstanding options. Correct assessment of market volatility can therefore be of much greater significance in trading options than it is in many long-term futures strategies where volatility does not have as great an effect on the price of a futures contract. During the period January 2000 through December 2000, only Spectrum Strategic and Spectrum Global Balanced engaged in any significant options trading. Solely for the purpose of quantifying Spectrum Strategic's and Spectrum Global Balanced's options trading as compared to their overall trading, the general partner has calculated a margin level for such partnerships' month-end options positions on a futures equivalent basis. During the period January 2000 through December 2000, Spectrum Strategic's average month-end margin level for its options positions was 4.6% of its total average month-end margin requirements for the period and Spectrum Global Balanced's average month-end margin level for its 9 options positions was 6.3% of its total average month-end margin requirements for the period. You should be aware, however, that in the future the other partnerships may engage in significant options trading and the level of Spectrum Strategic's and Spectrum Global Balanced's options trading could vary significantly. YOU SHOULD NOT RELY ON THE PAST PERFORMANCE OF A PARTNERSHIP IN DECIDING TO PURCHASE UNITS. Since the future performance of a partnership is unpredictable, each partnership's past performance is not necessarily indicative of future results. SPECTRUM COMMODITY IS SUBJECT TO GREATER RISK OF LOSS DURING PERIODS OF LOW INFLATION. During periods of low or no commodity price inflation, Spectrum Commodity is more likely to experience losses because it is a long-only commodity fund. As a long-only commodity fund, the partnership will not be profitable unless some commodity prices increase. For example, Spectrum Commodity experienced losses during its initial year of trading, as 1998 was a year characterized by a deflationary environment with respect to the commodities traded by the partnership, except orange juice. MARKET ILLIQUIDITY MAY CAUSE LESS FAVORABLE TRADE PRICES. Although the trading advisors for each partnership generally will purchase and sell actively traded contracts where last trade price information and quoted prices are readily available, the prices at which a sale or purchase occur may differ from the prices expected because there may be a delay between receiving a quote and executing a trade, particularly in circumstances where a market has limited trading volume and prices are often quoted for relatively limited quantities. In addition, most U.S. futures exchanges have established "daily price fluctuation limits" which preclude the execution of trades at prices outside of the limit, and, from time to time, the CFTC or the exchanges may suspend trading in market disruption circumstances. In these cases it is possible that a partnership could be required to maintain a losing position that it otherwise would execute and incur significant losses or be unable to establish a position and miss a profit opportunity. TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN TRADING ON U.S. EXCHANGES. - Each partnership trades on exchanges located outside the U.S. Trading on U.S. exchanges is subject to CFTC regulation and oversight, including for example minimum capital requirements for commodity brokers, regulation of trading practices on the exchanges, prohibitions against trading ahead of customer orders, prohibitions against filling orders off exchanges, prescribed risk disclosure statements, testing and licensing of industry sales personnel and other industry professionals, and record keeping requirements. Trading on foreign exchanges is not regulated by the CFTC or any other U.S. governmental agency or instrumentality and may be subject to regulations that are different from those to which U.S. exchange trading is subject, provide less protection to investors than trading on U.S. exchanges and may be less vigorously enforced than regulations in the U.S. - Positions on foreign exchanges also are subject to the risk of exchange controls, expropriation, excessive taxation or government disruptions. - A partnership could incur losses when determining the value of its foreign positions in U.S. dollars because of fluctuations in exchange rates. Each partnership must deposit margin with respect to the partnership's futures and options contracts on both U.S. exchanges and on foreign exchanges and must deposit margin with respect to its foreign currency forward contracts to assure the partnership's performance on those contracts. Set forth below for each partnership is the average percentage of month-end margin requirements for the period January 2000 through December 2000, and, in the case of Spectrum Currency, for the period from its inception of trading in July 2000 through December 2000, that relate to futures and options contracts on foreign exchanges as compared to the partnership's total average month-end margin requirements. This information will provide you with a sense of the magnitude of each partnership's trading on foreign exchanges, and, therefore, the relevance of the risks described in the prior paragraph to each partnership. 10 You should be aware, however, that the percentage of each partnership's margin requirements that relate to positions on foreign exchanges varies from month to month and can be significantly higher or lower than the percentages set forth below.
% --------- Spectrum Select 33.3 Spectrum Technical 34.9 Spectrum Strategic 31.0 Spectrum Global Balanced 51.3 Spectrum Currency 0.0 Spectrum Commodity 14.2
THE UNREGULATED NATURE OF THE FORWARDS MARKETS CREATES COUNTERPARTY RISKS THAT DO NOT EXIST IN FUTURES TRADING ON EXCHANGES. Unlike futures contracts, forwards contracts are entered into between private parties off an exchange and are not regulated by the CFTC or by any other U.S. government agency. Because forwards contracts are not traded on an exchange, the performance of those contracts is not guaranteed by an exchange or its clearinghouse and the partnership is at risk to the ability of the counterparty to the trade to perform on the forwards contract. Because trading in the forwards markets is not regulated, there are no specific standards or regulatory supervision of trade pricing and other trading activities that occur in those markets. Because the partnerships trade forwards contracts in foreign currency with Morgan Stanley, they are at risk to the creditworthiness and trading practices of Morgan Stanley as the counterparty to the trades. Spectrum Commodity will not trade foreign currency forwards. As the counterparty to all of the partnerships' foreign currency forwards contracts, Morgan Stanley requires the partnerships to make margin deposits to assure the partnerships' performance on those contracts, just as Morgan Stanley requires the partnerships to deposit margin on their futures contracts. Set forth below for each partnership is the average percentage of month-end total margin requirements for the period January 2000 through December 2000, and, in the case of Spectrum Currency, for the period from its inception of trading in July 2000 through December 2000, that relate to forwards contracts. This information will provide you with a sense of the magnitude of each partnership's trading in the forwards contracts markets as compared to its trading of futures and options contracts on regulated exchanges, and, therefore, the relevance of the risks described in the prior paragraphs to each partnership. You should be aware that the percentage of each partnership's margin requirements that relate to forwards contracts varies from month to month and can be significantly higher or lower than the percentages set forth below.
% - Spectrum Select 11.1 Spectrum Technical 11.3 Spectrum Strategic 0.0 Spectrum Global Balanced 4.8 Spectrum Currency 100.0 Spectrum Commodity Not Applicable
THE PARTNERSHIPS ARE SUBJECT TO SPECULATIVE POSITION LIMITS. The CFTC and U.S. futures exchanges have established speculative position limits on the maximum number of futures and options positions that may be held or controlled by any one person or group. Therefore, a trading advisor may have to reduce the size of its futures position in order to avoid exceeding position limits, which could adversely affect the profitability of a partnership. THE PARTNERSHIPS COULD LOSE ASSETS AND HAVE THEIR TRADING DISRUPTED IF A COMMODITY BROKER OR OTHERS BECOME BANKRUPT. The partnerships' assets could be lost or impounded and trading suspended if a commodity broker, an exchange or a clearinghouse becomes insolvent or involved in lengthy bankruptcy proceedings. 11 PARTNERSHIP AND OFFERING RISKS EACH PARTNERSHIP INCURS SUBSTANTIAL CHARGES. Each partnership must pay substantial charges and must earn significant trading profits just to pay those expenses. The general partner estimates the percentage of partnership net assets that must be earned each year in order for each partnership to break-even without accounting for a redemption charge to be:
% ---- Spectrum Select................. 6.25 Spectrum Technical.............. 6.00 Spectrum Strategic.............. 6.25
% ---- Spectrum Global Balanced........ 0.85 Spectrum Currency............... 2.60 Spectrum Commodity.............. 3.10
For actual past performance results relating to each partnership, including when a partnership did not break-even, see each partnership's performance capsule on pages - - - . INCENTIVE FEES MAY BE PAID BY A PARTNERSHIP EVEN THOUGH THE PARTNERSHIP SUSTAINS TRADING LOSSES. Each partnership pays each of its trading advisors an incentive fee based upon partnership trading profits earned by that trading advisor. These trading profits include unrealized appreciation on open positions. Accordingly, it is possible that a partnership will pay an incentive fee on trading profits that do not become realized. Also, each trading advisor will retain all incentive fees paid to it, even if the assets of a partnership managed by the trading advisor incur a subsequent loss after payment of an incentive fee. Because incentive fees are paid monthly by all of the partnerships, except Spectrum Commodity in which incentive fees are paid annually, it is possible that an incentive fee may be paid by such partnerships to a trading advisor during a year in which the assets allocated to the trading advisor suffer a loss for the year. Because each trading advisor for a partnership receives an incentive fee based on the trading profits earned by it for the partnership, the trading advisor may have an incentive to make investments that are riskier than would be the case in the absence of such an incentive fee. For all of the partnerships, except Spectrum Global Balanced and Spectrum Commodity, each of which has only one trading advisor, it is also possible that one trading advisor for a partnership may generate trading profits on which it has earned an incentive fee, while the other trading advisors simultaneously incur losses such that the partnership is paying an incentive fee when it has sustained an overall trading loss. RESTRICTED INVESTMENT LIQUIDITY IN THE UNITS. There is no secondary market for units and you are not permitted to redeem your units until you have been an investor in the Spectrum Series of partnerships for at least six months. After the initial six-month period, you may redeem your units at any month-end, but you may have to pay a redemption charge if you redeem units during the first twenty-four months after they were purchased. Your right to receive payment on a redemption is not absolute and is dependent upon the partnership having sufficient assets to pay its liabilities on the redemption date, and the general partner receiving your request for redemption at least five business days before the redemption date. EACH PARTNERSHIP'S STRUCTURE HAS CONFLICTS OF INTEREST. - The general partner, Dean Witter, Morgan Stanley, Morgan Stanley International, and Morgan Stanley Dean Witter Commodities Management are affiliates. As a result, the fees and other compensation received by these parties and other terms relating to the operation of the partnerships and the sale of the units have not been independently negotiated. In addition, the management fee paid by Spectrum Commodity to its trading advisor and the terms of its management agreement have not been independently negotiated. - Employees of Dean Witter receive a portion of the brokerage fees paid by the partnerships. Therefore, those employees have a conflict of interest in advising you in the purchase or redemption of units. - The trading advisors, commodity brokers, and general partner may trade futures, forwards and options for their own accounts, and thus, they may compete with a partnership for positions. Also, 12 the other commodity pools managed by the general partner and the trading advisors compete with the partnerships for positions. These conflicts can result in less favorable prices on the partnerships' transactions. AN INVESTMENT IN UNITS MAY NOT DIVERSIFY AN OVERALL PORTFOLIO. Because futures, forwards, and options have historically performed independently of traditional investments, the general partner believes that managed futures funds like the partnerships can diversify a portfolio of stocks and bonds. However, the general partner cannot assure you that any of the partnerships will perform with a significant degree of non-correlation to your other investments in the future. Spectrum Global Balanced, in particular, will have greater correlation to the performance of stocks and bonds. Information showing the monthly correlation comparison of each partnership, or, in the case of Spectrum Currency, of the past performance of Dean Witter Cornerstone IV, which is another currency only fund operated by the general partner and traded by the same trading advisors, adjusted for Spectrum Currency's fees and expenses, to the S&P 500 Index and to the Salomon Corporate Bond Index is provided on pages - to - . TRADING ADVISOR RISKS RELIANCE ON THE TRADING ADVISOR(S) TO TRADE SUCCESSFULLY. The trading advisors are responsible for making all trading decisions for the partnerships. The general partner cannot assure you that the trading programs employed by the trading advisors will be successful. MARKET FACTORS MAY ADVERSELY INFLUENCE THE TRADING PROGRAMS. Often, the most unprofitable market conditions for the partnerships are those in which prices "whipsaw," moving quickly upward, then reversing, then moving upward again, then reversing again. In these conditions, the trading advisors may establish positions based on incorrectly identifying both the brief upward or downward price movements as trends when in fact no trends sufficient to generate profits develop. POSSIBLE CONSEQUENCES OF USING MULTIPLE TRADING ADVISORS FOR SPECTRUM SELECT, SPECTRUM TECHNICAL, SPECTRUM STRATEGIC, AND SPECTRUM CURRENCY. Each of Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Currency has more than one trading advisor, and each trading advisor will make trading decisions independent of the other trading advisors. As a result, it is possible that the trading advisors for a partnership could hold opposite positions in the same or similar futures, forwards or options, thereby offsetting any potential for profit from these positions for the partnership. It is also possible that the trading advisors for a partnership may hold similar positions in the same or similar futures, forwards or options, thereby compounding a potential losing position. SPECTRUM GLOBAL BALANCED AND SPECTRUM COMMODITY ARE SINGLE-ADVISOR FUNDS AND LACK THE DIVERSITY OF A MULTI-ADVISOR FUND. Spectrum Global Balanced and Spectrum Commodity are each managed by a single trading advisor. Therefore, the partnerships lack the potential benefit of trading advisor diversification employed by each of the other partnerships. INCREASING THE ASSETS MANAGED BY A TRADING ADVISOR MAY ADVERSELY AFFECT PERFORMANCE. The rates of return achieved by trading advisors may diminish as the assets under their management increase. This can occur for many reasons, including the inability of the trading advisor to execute larger position sizes at desired prices and because of the need to adjust the advisor's trading program to avoid exceeding speculative position limits. These are limits established by the CFTC and the exchanges on the number of speculative futures and option contracts in a commodity that one trader may own or control. You should know that the trading advisors have not agreed to limit the amount of additional assets that they will manage. LIMITED PARTNERS WILL NOT BE AWARE OF CHANGES TO TRADING PROGRAMS. Because of the proprietary nature of each trading advisor's trading programs, limited partners generally will not be advised if adjustments are made to a trading advisor's trading program in order to accommodate additional assets under management or for any other reason. LIMITED TERM OF MANAGEMENT AGREEMENTS MAY LIMIT ACCESS TO A TRADING ADVISOR. When the management agreement with a trading advisor expires, the general partner may not be able to enter into arrangements with that trading advisor or another trading advisor on terms substantially similar to the 13 management agreements described in this prospectus. Currently, most of the management agreements with each partnership have one-year terms, which renew annually unless terminated by the general partner or the trading advisor. THE ANNUAL INCENTIVE FEE PAID BY SPECTRUM COMMODITY CAN CREATE CERTAIN DISTORTIONS REGARDING THE SHARE OF THE INCENTIVE FEE BORNE BY EACH INVESTOR. Spectrum Commodity pays its trading advisor an annual incentive fee. If the partnership has new trading profits as of the end of a month that is not the end of a year, the net asset value of each unit will be reduced by the amount of an accrued (but not paid) incentive fee. If new units are issued at that month-end, the net asset value of the new units will reflect the accrued incentive fee. If an investor redeems units at the end of a month when there is an accrued incentive fee, the value of the units redeemed will reflect (be reduced by) the amount of the accrued incentive fee and the fee with respect to those units will be paid to the trading advisor, even if the partnership subsequently experiences a trading loss during the remainder of the calendar year. If the partnership subsequently experiences a trading loss during the remainder of the calendar year, any accrued incentive fee would be reversed with respect to the remaining units, thereby causing an increase in the net asset value per unit. Because all units have the same net asset value, any reversal of an incentive fee accrual would be spread over all outstanding units, including units issued after the profits resulting in the accrued incentive fee, thereby diluting the "benefit" of the accrual reversal. TAXATION RISKS EVEN THOUGH THE PARTNERSHIPS DO NOT INTEND TO MAKE DISTRIBUTIONS, YOU WILL BE LIABLE FOR TAXES ON YOUR SHARE OF ANY TRADING PROFITS AND ANY OTHER INCOME OF THE PARTNERSHIPS IN WHICH YOU HAVE INVESTED. For U.S. federal income tax purposes, if a partnership in which you own units has taxable income for a year, that income will be taxable to you in accordance with your allocable share of income from the partnership, whether or not any amounts have been distributed to you. The general partner presently does not intend to make distributions from the partnerships. Accordingly, it is anticipated that you will incur tax liabilities as a result of being allocated taxable income from a partnership even though you will not receive current cash distributions with which to pay the taxes. THE PARTNERSHIPS' TAX RETURNS COULD BE AUDITED. The IRS could audit a partnership's tax return. If an audit results in an adjustment to a partnership's tax return, you could be required to file an amended tax return. CONFLICTS OF INTEREST While the general partner, Dean Witter, Morgan Stanley, Morgan Stanley International, Morgan Stanley Dean Witter Commodities Management, and their affiliates will seek to avoid conflicts of interest to the extent feasible and to resolve all conflicts that may arise equitably and in a manner consistent with their responsibilities to the partnerships, no specific policies regarding conflicts of interest have been or are intended to be adopted by the general partner or the partnerships. The following are actual and potential conflicts of interest that do and may continue to exist with respect to the partnerships. THE BROKERAGE ARRANGEMENTS WITH AFFILIATES OF THE GENERAL PARTNER WERE NOT NEGOTIATED AT ARMS-LENGTH OR REVIEWED BY ANY INDEPENDENT PARTY FOR FAIRNESS The general partner, Dean Witter, Morgan Stanley, and Morgan Stanley International are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. Dean Witter is the non-clearing commodity broker for each partnership and receives a monthly brokerage fee for effecting transactions for each partnership. Morgan Stanley, as the clearing commodity broker, will receive a portion of the monthly brokerage fee payable to Dean Witter for effecting transactions for the partnerships. Morgan Stanley International will serve as the commodity broker for each partnership's trades on the London Metal Exchange; however, Morgan Stanley International's fees will be paid by Morgan Stanley and not by the partnerships. Because the general partner is an affiliate of Dean Witter and Morgan Stanley, the flat-rate brokerage fees charged to each partnership have not been negotiated at arm's-length. Moreover, the general partner has a conflict of interest in managing the partnerships for your benefit, obtaining favorable brokerage fees for Dean Witter, and retaining Dean Witter, Morgan Stanley, and Morgan Stanley International as commodity brokers. In addition, the brokerage fees generated by the partnerships are used by Dean Witter as a factor in determining the salaries and bonuses of Dean Witter's employees who are 14 also officers and directors of the general partner. Customers of Dean Witter who maintain commodity trading accounts of over $1,000,000 pay commissions at negotiated rates that may be less than the rate paid by each partnership. THE GENERAL PARTNER HAS A DISINCENTIVE TO REPLACE THE COMMODITY BROKERS. The general partner has a disincentive to replace Dean Witter, Morgan Stanley, and Morgan Stanley International as the partnerships' commodity brokers because they are affiliates of the general partner and receive compensation for serving as the partnerships' commodity brokers. In connection with this conflict of interest, you should understand that Dean Witter receives a monthly flat-rate brokerage fee from each partnership for serving as the partnership's non-clearing commodity broker. From its brokerage fee, Dean Witter pays or reimburses each partnership for the transaction fees and costs charged by Morgan Stanley and Morgan Stanley International for acting as the partnership's clearing commodity brokers. Also, Morgan Stanley, as the counterparty on each partnership's foreign currency forward trades, will attempt to earn a mark-up, spread, or other profit on each foreign currency forward contract trade which is separate from the flat-rate brokerage fees paid by the partnership to Dean Witter. While each partnership has the right to seek lower commission rates from other commodity brokers at any time, the general partner believes that the customer agreements and other arrangements between each partnership and the commodity brokers are fair, reasonable and competitive, and represent the best price and services available, considering the following factors. Dean Witter pays the expenses of organizing the partnerships, offering the units, and the partnerships' ordinary administrative expenses. None of these expenses would ordinarily be paid by an independent commodity broker, and these expenses would otherwise have to be borne by the partnerships. Further, the general partner provides ongoing services to the partnerships, including administering the redemption and exchanges of units, and the general partner has financial obligations as the general partner of the partnerships. The general partner is not reimbursed or otherwise compensated by the partnerships for these services or obligations. The general partner reviews the brokerage and foreign currency forward counterparty arrangements annually to ensure that they are fair, reasonable and competitive, and that they represent the best price and services available, taking into consideration the size and trading activity of each partnership and the services provided, and the costs, expenses, and risk borne, by Dean Witter, Morgan Stanley, Morgan Stanley International, and the general partner. THE TERMS OF THIS OFFERING WERE NOT SUBJECT TO INDEPENDENT DUE DILIGENCE The partnerships, Dean Witter, Morgan Stanley, Morgan Stanley International, Morgan Stanley Dean Witter Commodities Management, and the general partner are represented by a single counsel. Therefore, the terms of this offering relating to those parties were not negotiated at arm's-length. In addition, no independent due diligence has been conducted with respect to this offering. EMPLOYEES OF DEAN WITTER ARE COMPENSATED BASED UPON YOUR INVESTMENT AND REDEMPTION DECISIONS Dean Witter pays a significant portion of the brokerage fees it receives from each partnership to its employees for providing continuing assistance to limited partners. Therefore, because Dean Witter employees are directly compensated based on your decision to purchase and retain units in a partnership, they have a conflict of interest when advising you to purchase or redeem units in a partnership. THE SELECTION OF A TRADING ADVISOR MAY BENEFIT DEAN WITTER The general partner is responsible for selecting and replacing, if necessary, each trading advisor. However, since selecting trading advisors who engage in a high volume of trades will increase Dean Witter's costs as non-clearing commodity broker, without necessarily increasing revenue, the general partner has an incentive to select trading advisors who trade less frequently. THE GENERAL PARTNER HAS A DISINCENTIVE TO REPLACE THE TRADING ADVISOR FOR SPECTRUM COMMODITY BECAUSE IT IS AN AFFILIATE OF THE GENERAL PARTNER Morgan Stanley Dean Witter Commodities Management is the trading advisor for Spectrum Commodity and receives a monthly management fee and a possible annual incentive fee. Because the general partner and Morgan Stanley Dean Witter Commodities Management are both wholly-owned 15 subsidiaries of Morgan Stanley Dean Witter & Co., they are affiliates and, as such, the terms of the management agreement, including the management and incentive fees, have not been negotiated at arm's-length. Further, the general partner has a disincentive to remove and replace Morgan Stanley Dean Witter Commodities Management as trading advisor. AFFILIATES OF THE GENERAL PARTNER, THE TRADING ADVISORS, AND THE COMMODITY BROKERS MAY TRADE FOR THEIR OWN ACCOUNTS IN COMPETITION WITH THE PARTNERSHIPS The general partner does not trade futures, forwards or options for its own account, but officers, directors and employees of the general partner, the commodity brokers, and the trading advisors and their affiliates, principals, officers, directors and employees, may trade futures, forwards and options for their own proprietary accounts. Their trading records will not be available to you. As a result, you will not be able to compare the performance of their trading to the performance of the partnerships. Morgan Stanley and Morgan Stanley International are large futures commission merchants, handling substantial customer business in physical commodities and futures, forwards, and options. Thus, Morgan Stanley and Morgan Stanley International may effect transactions for the account of a partnership in which the other parties to such transactions are employees or affiliates of the general partner, a trading advisor, Morgan Stanley, Morgan Stanley International, or customers or correspondents of Morgan Stanley and Morgan Stanley International. These persons might also compete with a partnership in bidding on purchases or sales of futures, forwards and options without knowing that the partnership is also bidding. It is possible that transactions for these other persons might be effected when similar trades for one or more partnerships are not executed or are executed at less favorable prices. THE TRADING ADVISORS MANAGE OTHER ACCOUNTS THAT WILL COMPETE WITH THE PARTNERSHIPS - Each trading advisor manages other accounts trading futures, forwards and options, in addition to the partnership's accounts. Each trading advisor must aggregate futures and options positions in other accounts managed by it with futures and options positions in the applicable partnership's account for speculative position limits purposes. This may require a trading advisor to liquidate or modify positions for all of its accounts, which could adversely affect the partnership's performance. - Each trading advisor currently manages accounts that pay fees higher than the fees paid by the partnerships. A trading advisor will have a conflict of interest in rendering advice to a partnership because the compensation it receives for managing another account exceeds the compensation it receives for managing the partnership's account. - If a trading advisor makes trading decisions for other accounts and a partnership's account at or about the same time, the partnership may be competing with those other accounts for the same or similar positions. - The trading advisors' records for these other accounts will not be made available to you. As a result, you will not be able to compare the performance of these accounts to the performance of the partnerships. THE LACK OF DISTRIBUTIONS INCREASES THE FEES PAID TO AFFILIATES OF THE GENERAL PARTNER The general partner is responsible for determining whether and when to distribute trading profits earned by a partnership. Since the general partner currently does not intend to distribute trading profits, Dean Witter will receive increased brokerage fees, because these fees are based upon the net asset value of a partnership, and net asset value will increase by retaining a partnership's trading profits. CUSTOMER AGREEMENTS WITH THE COMMODITY BROKERS PERMIT ACTIONS WHICH COULD RESULT IN LOSSES OR LOST PROFIT OPPORTUNITY Under each customer agreement for a partnership, all funds, futures, forwards, options, and securities positions, and credits carried for the partnership, are held as security for its obligations to the commodity broker; the margins necessary to initiate or maintain open positions will be established by the commodity broker from time to time; and the commodity broker may close out positions, purchase futures, forwards and options, or cancel orders at any time it deems necessary for its protection, without the consent of the partnership. For example, a commodity broker may determine to take any of these actions if prices in the 16 futures markets are moving rapidly against a partnership's positions and the commodity broker is concerned that potential losses could exceed the partnership's assets such that the commodity broker would be left to incur the loss. While not a likely occurrence, it is possible for the trading advisors to believe that market conditions will change and that existing positions or trades they wish to make would be profitable, such that the actions of the commodity broker preclude the partnership from engaging in profitable transactions or avoiding losses. Each commodity broker or the general partner, or the investors in each partnership by majority vote, may terminate the brokerage relationship upon prior written notice. FIDUCIARY RESPONSIBILITY AND LIABILITY You should be aware that the general partner has a fiduciary duty under the limited partnership agreements and the Delaware Revised Uniform Limited Partnership Act to exercise good faith and fairness in all dealings affecting the partnerships. The limited partnership agreements do not permit the general partner to limit, by any means, the fiduciary duty it owes to investors. In the event that you believe the general partner has violated its responsibilities, you may seek legal relief under the Partnership Act, the Commodity Exchange Act, as amended, applicable federal and state securities laws, and other applicable laws. Each trading advisor also has a fiduciary duty under applicable law to each partnership it advises. The limited partnership agreements, the customer agreements, and the selling agreement provide that the general partner, the commodity brokers, Dean Witter (as selling agent), any other firm selling units, and their affiliates shall not be liable to a partnership or its investors for any act or omission by or on behalf of the partnership which the general partner, the commodity brokers, Dean Witter (as selling agent), or any additional seller, as applicable, determines in good faith to be in the best interests of the partnership, unless the act or omission constituted misconduct or negligence. Under the limited partnership agreements, the customer agreements, and the selling agreement, each partnership has agreed to indemnify and defend the general partner, the commodity brokers, Dean Witter (as selling agent), any additional seller, and their affiliates, against any loss, liability, damage, cost or expense (including attorneys' and accountants' fees and expenses) they incur which arise from acts or omissions undertaken by or on behalf of the partnership, including claims by investors. These indemnities apply where the general partner, the commodity brokers, Dean Witter (as selling agent), any additional seller, or their affiliates as applicable, has determined, in good faith, that the act or omission was in the best interests of the partnership, and the act or omission was not the result of misconduct or negligence. Payment of any indemnity by a partnership would reduce the net assets of that partnership. The partnerships do not carry liability insurance covering such potential losses or indemnification exposure. No indemnification of the general partner, the commodity brokers, Dean Witter (as selling agent), any additional seller, or their affiliates by a partnership is permitted for losses, liabilities, or expenses arising out of alleged violations of federal or state securities laws unless a court has found in favor of the indemnitee on the merits of the claim, or a court has dismissed the claim with prejudice on the merits, or a court has approved a settlement on the claim and found that the indemnification should be made by the partnership. Where court approval for indemnification is sought, the person claiming indemnification must advise the court of the views on indemnification of the SEC and the relevant state securities administrators. It is the opinion of the SEC that indemnification for liabilities arising under the Securities Act of 1933, as amended, for directors, officers or controlling persons of a partnership or the general partner is against public policy and is therefore unenforceable. The CFTC has issued a statement of policy relating to indemnification of officers and directors of a futures commission merchant, such as the commodity brokers, and its controlling persons under which the CFTC has taken the position that whether such an indemnification is consistent with the policies expressed in the Commodity Exchange Act will be determined by the CFTC on a case-by-case basis. Each management agreement generally provides that the trading advisor and its affiliates will not be liable to the partnership or the general partner or their partners, officers, shareholders, directors or controlling persons. The trading advisor is, however, liable for acts or omissions of the trading advisor or its affiliates if the act or omission constitutes a breach of the management agreement or a representation, warranty or covenant in the management agreement, constitutes misconduct or negligence, or is the result of such persons not having acted in good faith and in the reasonable belief that such actions or omissions 17 were in, or not opposed to, the best interests of the partnership. Each partnership has agreed to indemnify and defend its trading advisor(s) and their affiliates against any loss, claim, damage, liability, cost and expense 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 the indemnified party), relating to the trading activities of the partnership, if a court finds, or independent counsel renders an opinion, that the action or inaction giving rise to the claim did not constitute negligence, misconduct or a breach of the management agreement or a representation, warranty or covenant of the trading advisor in that agreement, and was done in good faith and in a manner the indemnified party reasonably believed to be in, or not opposed to, the best interests of the partnership. Each partnership will also indemnify its trading advisors and their affiliates against any loss, claim, damage, liability, cost and expense, arising under the federal securities laws, the Commodity Exchange Act, or the securities or Blue Sky law of any jurisdiction, in respect of the offer or sale of units. This indemnification will be made for liabilities resulting from a breach of any representation, warranty or agreement in the management agreement relating to the offering, or an actual or alleged misleading or untrue statement of a material fact, or an actual or alleged omission of a material fact, made in the registration statement, prospectus or related selling material, so long as the statement or omission does not relate to the trading advisor or its principals, was not made in reliance upon, and in conformity with, information or instructions furnished by the trading advisor, or does not result from a breach by the trading advisor of any representation, warranty or agreement relating to the offering. The foregoing involves a rapidly developing and changing area of the law and if you have questions concerning the duties of the partnerships, the general partner, the commodity brokers, the selling agent, any additional seller or the trading advisors, you should consult with your attorney. 18 DESCRIPTION OF CHARGES CHARGES TO EACH PARTNERSHIP Each partnership is subject to substantial charges, all of which are described below. SPECTRUM SELECT
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION - ------------------------------------------ ------------------------------------------ ------------------------------------------ The trading advisors...................... Monthly management fee. 1/12 of 3% of the net assets allocated to each trading advisor. Monthly incentive fee. 15% of the trading profits experienced with respect to the net assets allocated to each trading advisor. The commodity brokers..................... Monthly brokerage fee to Dean Witter. 1/12 of 7.25% of the partnership's net assets. Financial benefit to Dean Witter from The compensating balance and excess net interest earned on the partnership's interest benefit to Dean Witter is assets in excess of the interest paid to estimated at less than 2% of the the partnership and from compensating partnership's annual average month-end net balance treatment in connection with its assets. The aggregate of the brokerage fee designation of a bank or banks in which payable by the partnership and net excess the partnership's assets are deposited. interest and compensating balance benefits to Dean Witter (after crediting the partnership with interest) will not exceed 14% annually of the partnership's average month-end net assets during a calendar year. Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for- spread, markup, or other profit on the eign currency forward trades. foreign currency forward contract trades it executes with the partnership.
19 SPECTRUM TECHNICAL
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION - ------------------------------------------ ------------------------------------------ ------------------------------------------ The trading advisors...................... Monthly management fee. 1/12 of 2% of the net assets allocated to JWH, 1/12 of 3% of the net assets allocated to Campbell, and 1/12 of 4% of the net assets allocated to Chesapeake. Monthly incentive fee. 19% of the trading profits experienced with respect to the net assets allocated to Chesapeake and 20% with respect to the net assets allocated to each of Campbell and JWH. The commodity brokers..................... Monthly brokerage fee to Dean Witter. 1/12 of 7.25% of the partnership's net assets. Financial benefit to Dean Witter from The compensating balance and excess net interest earned on the partnership's interest benefit to Dean Witter is assets in excess of the interest paid to estimated at less than 2% of the the partnership and from compensating partnership's annual average month-end net balance treatment in connection with its assets. The aggregate of the brokerage fee designation of a bank or banks in which payable by the partnership and net excess the partnership's assets are deposited. interest and compensating balance benefits to Dean Witter (after crediting the partnership with interest) will not exceed 14% annually of the partnership's average month-end net assets during a calendar year. Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for- spread, markup, or other profit on the eign currency forward trades. foreign currency forward contract trades it executes with the partnership.
20 SPECTRUM STRATEGIC
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION - ------------------------------------------ ------------------------------------------ ------------------------------------------ The trading advisors...................... Monthly management fee. 1/12 of 3% of the net assets allocated to each trading advisor. Monthly incentive fee. 15% of the trading profits experienced with respect to the net asset allocated to each trading advisor. The commodity brokers..................... Monthly brokerage fee to Dean Witter. 1/12 of 7.25% of the partnership's net assets. Financial benefit to Dean Witter from The compensating balance and excess net interest earned on the partnership's interest benefit to Dean Witter is assets in excess of the interest paid to estimated at less than 2% of the the partnership and from compensating partnership's annual average month-end net balance treatment in connection with its assets. The aggregate of the brokerage fee designation of a bank or banks in which payable by the partnership and net excess the partnership's assets are deposited. interest and compensating balance benefits to Dean Witter (after crediting the partnership with interest) will not exceed 14% annually of the partnership's average month-end net assets during a calendar year. Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for- spread, markup, or other profit on the eign currency forward trades. foreign currency forward contract trades it executes with the partnership.
SPECTRUM GLOBAL BALANCED
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION - ------------------------------------------ ------------------------------------------ ------------------------------------------ The trading advisor....................... Monthly management fee. 1/12 of 1.25% of the partnership's net assets. Monthly incentive fee. 15% of the trading profits. The commodity brokers..................... Monthly brokerage fee to Dean Witter. 1/12 of 4.60% of the partnership's net assets. Financial benefit to Dean Witter from The compensating balance and excess net interest earned on the partnership's interest benefit to Dean Witter is assets in excess of the interest paid to estimated at less than 1% of the the partnership and from compensating partnership's annual average month-end net balance treatment in connection with its assets. The aggregate of the brokerage fee designation of a bank or banks in which payable by the partnership and net excess the partnership's assets are deposited. interest and compensating balance benefits to Dean Witter (after crediting the partnership with interest) will not exceed 14% annually of the partnership's average month-end net assets during a calendar year. Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for- spread, markup, or other profit on the eign currency forward trades. foreign currency forward contract trades it executes with the partnership.
21 SPECTRUM CURRENCY
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION - ------------------------------------------ ------------------------------------------ ------------------------------------------ The trading advisors...................... Monthly management fee. 1/12 of 2% of the net assets allocated to each trading advisor. Monthly incentive fee. 20% of the trading profits experienced with respect to the net assets allocated to each trading advisor. The commodity brokers..................... Monthly brokerage fee to Dean Witter. 1/12 of 4.60% of the partnership's net assets. Financial benefit to Dean Witter from The compensating balance and excess net interest earned on the partnership's interest benefit to Dean Witter is assets in excess of the interest paid to estimated at less than 2% of the the partnership and from compensating partnership's annual average month-end net balance treatment in connection with its assets. The aggregate of the brokerage fee designation of a bank or banks in which payable by the partnership and net excess the partnership's assets are deposited. interest and compensating balance benefits to Dean Witter (after crediting the partnership with interest) will not exceed 14% annually of the partnership's average month-end net assets during a calendar year. Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for- spread, markup, or other profit on the eign currency forward trades. foreign currency forward contract trades it executes with the partnership.
SPECTRUM COMMODITY
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION - ------------------------------------------ ------------------------------------------ ------------------------------------------ The trading advisor....................... Monthly management fee. 1/12 of 2.5% of the partnership's net assets. Annual incentive fee. 17.5% of trading profits. The commodity brokers..................... Monthly brokerage fee to Dean Witter. 1/12 of 4.60% of the partnership's net assets. Financial benefit to Dean Witter from The compensating balance and excess net interest earned on the partnership's interest benefit to Dean Witter is assets in excess of the interest paid to estimated at less than 2% of the the partnership and from compensating partnership's annual average month-end net balance treatment in connection with its assets. The aggregate of brokerage fees designation of a bank or banks in which payable by the partnership, and net excess the partnership's assets are deposited. interest and compensating balance benefits to Dean Witter (after crediting the partnership with interest) will not exceed 14% annually of the partnership's average month-end net assets during a calendar year.
22 TRADING ADVISORS Each partnership pays each of its trading advisors a monthly management fee, whether or not the assets of the partnership as a whole or the assets allocated to such trading advisor are profitable. In addition, each partnership pays each of its trading advisors an incentive fee if trading profits are earned on the net assets allocated to such trading advisor. MONTHLY MANAGEMENT FEE. Each partnership pays each of its trading advisors a monthly management fee based on the net assets under management as of the first day of each month, at the rate set forth in the above chart. The monthly management fee compensates the trading advisor for the services performed in connection with the net assets under management. Following is an example of the management fee payable by a partnership. If the net assets of Spectrum Select equaled $200,000,000 as of the first day of each month during the fiscal year, the trading advisors would receive an aggregate monthly management fee for the year of $6,000,000 ( 1/12 of 3% of $200,000,000 per month, or $500,000 times 12). The management fee payable to the trading advisors in the foregoing example would be divided among them based on the portion of the $200,000,000 in net assets allocated to each such trading advisor at the beginning of each month. INCENTIVE FEE. Each partnership pays an incentive fee to each of its trading advisors if trading profits are experienced with respect to allocated net assets, at the rate set forth in the above chart. Trading profits means the net futures, forwards, and options profits (realized and unrealized) earned on the trading advisor's allocated net assets, decreased by monthly management fees and brokerage fees that are chargeable to the trading advisor's allocated net assets, with such trading profits and items of decrease determined from the end of the last period in which an incentive fee was earned by the trading advisor. Extraordinary expenses of the partnership, if any, are not deducted in determining trading profits. An extraordinary expense would result from an event that is both unusual in nature and infrequent in occurrence, such as litigation. No incentive fee is paid on interest earned by any partnership. In the case of Spectrum Commodity, whose trading advisor is eligible to receive an annual incentive fee, any accrued incentive fees with respect to units of Spectrum Commodity that are redeemed during the year will be deducted and paid to the trading advisor at the time of redemption, even though it may not qualify for an incentive fee at year-end. If incentive fees are paid to a trading advisor and the partnership fails to earn trading profits for any subsequent period, the trading advisor will retain the incentive fees previously paid. However, no subsequent incentive fees will be paid to the trading advisor until the trading advisor has again earned trading profits. If a trading advisor's allocated net assets are reduced or increased because of redemptions, additions or reallocations that occur at the end of or subsequent to an incentive period in which the trading advisor experiences a trading loss, the trading loss which must be recovered will be adjusted pro rata. Following is an example of the incentive fee payable by a partnership. If a trading advisor for Spectrum Select earns trading profits of $1,000,000 for the period ended January 31, 2001, the trading advisor will receive an incentive fee of $150,000 for that period (15% of $1,000,000). If, however, the trading advisor experiences realized and/or unrealized trading losses, or fees offset trading profits, so as to result in a $250,000 loss for the period ended February 28, 2001, an incentive fee will not be paid to the trading advisor for that period. In order for the trading advisor to earn an incentive fee in the following period ending March 31, 2001, the trading advisor will have to earn trading profits exceeding $250,000 for that period, since the incentive fee is payable based upon trading profits measured from the last period for which an incentive fee was paid (I.E., January 31), and not from the immediately preceding period. The foregoing example assumes no redemptions or reallocations or additional purchases of units during the periods in question, which would require adjustments as described above. COMMODITY BROKERS BROKERAGE FEES. Commodity brokerage fees for futures, forwards, and options trades are typically paid on the completion or liquidation of a trade and are referred to as "roundturn commissions," which cover both the initial purchase (or sale) of a futures interest and the subsequent offsetting sale (or purchase). 23 However, pursuant to the customer agreements with the commodity brokers, the partnerships pay a monthly flat-rate brokerage fee based on their net assets as of the first day of each month, at the rate set forth in the above chart, irrespective of the number of trades executed on a partnership's behalf. Following is an example of the brokerage fee payable by a partnership. If the net assets of Spectrum Select equaled $200,000,000 as of the first day of each month during the fiscal year, Dean Witter would receive an aggregate monthly brokerage fee for the year of $14,500,000 ( 1/12 of 7.25% of $200,000,000 per month, or $1,208,333, times 12). From the flat-rate brokerage fees received from the partnerships, Dean Witter pays or reimburses the partnerships for all fees and costs charged or incurred by the clearing commodity broker(s) for executing trades on behalf of the partnerships, including floor brokerage fees, exchange fees, clearinghouse fees, National Futures Association fees, "give up" fees, any taxes (other than income taxes), any third party clearing costs incurred by the clearing commodity broker(s), and costs associated with taking delivery of futures, forwards, and options contracts, and fees for execution of forward contract transactions. Dean Witter also pays, from the brokerage fees it receives, the ordinary administrative and continuing offering expenses of each partnership. Ordinary administrative expenses include legal, accounting and auditing expenses, printing and mailing expenses, and filing fees incurred in preparing reports, notices and tax information to limited partners and regulatory bodies. The continuing offering expenses of each partnership include legal, accounting and auditing fees, printing costs, filing fees, escrow fees, marketing costs (which include costs relating to sales seminars and the preparation of customer sales kits and brochures), and other related fees and expenses. While each partnership pays a flat-rate brokerage fee, rather than "roundturn commissions" on each trade, it is estimated, based upon the trading advisors' historical trading, that such flat-rate brokerage fee would approximate roundturn commissions ranging from approximately: $40-50 for Spectrum Select $40-50 for Spectrum Technical $25-35 for Spectrum Strategic $45-55 for Spectrum Global Balanced $45-55 for Spectrum Currency $65-75 for Spectrum Commodity You should note that the approximate roundturn commissions set forth above include administrative, offering, and other expenses, for which Dean Witter is responsible, but are typically paid separately from roundturn commissions. The foregoing estimates are based on past results and may vary in the future. FINANCIAL BENEFITS. Each partnership deposits all of its assets with the commodity brokers in connection with the partnership's futures, forward, and options trading. Dean Witter then pays each partnership the rate that Dean Witter earns on its U.S. Treasury bill investments with all customer segregated funds, as if 80% (100% in the case of Spectrum Global Balanced) of the partnership's average net assets for the month were invested at that rate. The commodity brokers, as they are permitted under CFTC regulations, invest a portion of the partnerships' funds in CFTC specified securities and other instruments and retain any interest earned on those investments. Instead of investing a partnership's funds, Dean Witter may choose to deposit the funds in non-interest-bearing bank accounts at various banks (currently four banks), in exchange for which the banks offer Dean Witter affiliates advantageous interest rates on loans up to the amount of the deposits. This is known as compensating balance treatment. The benefit to Dean Witter and its affiliates from this compensating balance treatment is the difference between the lending rate they would have received without the deposits and the rate they receive by reason of the deposits. The benefit to Dean Witter from this compensating balance arrangement and the investment of the partnerships' funds will vary depending upon market conditions. The approximate benefit to Dean Witter currently for each partnership is set forth in the "Charges To Each Partnership" table beginning on page - . For more information regarding Dean Witter's interest crediting arrangements with the partnerships and the investment of customer funds by the commodity brokers. See "Use of Proceeds--Interest Credits" on page - . Morgan Stanley, as the counterparty on foreign currency forward trades for each partnership, except Spectrum Commodity which does not trade foreign currency forwards, will attempt to earn a markup, 24 spread, or other profit as part of the transaction price on each foreign currency forward contract trade, which is separate from the flat-rate brokerage fees paid by the partnerships to Dean Witter. See "Conflicts of Interest" on page - . EXTRAORDINARY EXPENSES Each partnership is obligated to pay any extraordinary expenses it may incur. Extraordinary expenses will be determined in accordance with accounting principles generally accepted in the United States of America, which generally include events that are both unusual in nature and occur infrequently, such as litigation. EXPENSE LIMITATIONS The general partner may permit an increase, subject to state limits described below, in the management, incentive and brokerage fees payable by a partnership only on the first business day following a redemption date. Prior to any such increase, the following conditions must be satisfied: - notice of the increase must be mailed to investors at least five business days prior to the last date on which a "request for redemption" must be received by the general partner; - the notice must describe investors' redemption and voting rights; and - investors must not be subject to any redemption charges if they redeem units at the first redemption date following the notice. Each partnership's fees and expenses are subject to limits imposed under guidelines applied by state securities regulators, as set forth in Section 7(e) of the limited partnership agreement, including the limitation that the aggregate of the brokerage fees payable by the partnership to any commodity broker and the net excess interest and compensating balance benefits to any commodity broker, after crediting the partnership with interest, shall not exceed 14% annually of the partnership's average month-end net assets during the calendar year. The general partner will pay any fees and expenses in excess of any such limits. REDEMPTION CHARGES You may redeem all or part of your investment in any partnership at any month-end once you have been an investor in that partnership for at least six months, regardless of when your units were actually purchased. Units redeemed on or before the last day of the twelfth month after they were purchased, are subject to a redemption charge equal to 2% of the net asset value of a unit on the redemption date. Units redeemed after the last day of the twelfth month and on or before the last day of the twenty-fourth month after they were purchased are subject to a redemption charge equal to 1% of the net asset value of the units on the redemption date. If you redeem units after the last day of the twenty-fourth month after they were purchased, you will not be subject to a redemption charge. All redemption charges will be paid to Dean Witter and will not be shared with the financial advisor or additional selling agent who sold the units. The following is an example of a redemption charge that may be payable by you to Dean Witter. If you redeem $5,000 worth of units in Spectrum Select after the sixth month and on or before the last day of the twelfth month after the units were purchased, you will be subject to the full 2% redemption charge. In that case, an aggregate redemption charge equal to $100 (2% of $5,000 will be deducted from the proceeds of your redemption). 25 USE OF PROCEEDS Each partnership engages in the speculative trading of futures, forwards, and options contracts. The proceeds received by each partnership from the sale of its units and the continuing capital contributions made by the general partner to each partnership will be deposited in separate commodity trading accounts established by the commodity brokers for each of the trading advisors. All of the funds in a partnership's trading accounts will be used to engage in trading futures, forwards, and options contracts. The partnerships' assets held by the commodity brokers will be segregated or secured in accordance with the Commodity Exchange Act and CFTC regulations. The partnerships' trading on various U.S. futures exchanges is subject to CFTC regulation and the rules of the exchanges. The partnerships' trading on foreign futures exchanges is subject to regulation by foreign regulatory authorities and the rules of the exchanges. Each partnership's margin commitments with respect to its U.S. commodity futures and forwards positions have ranged, and are anticipated to range, between 10% and 40% of net assets (except Spectrum Select, which has ranged, and is anticipated to range, between 20% and 40% and Spectrum Commodity, which has ranged and is anticipated to range, between 5% and 20%). However, a partnership's margin levels could deviate substantially from that range in the future. The partnerships may trade on one or more of the following foreign futures exchanges and, from time to time, may trade on other foreign exchanges: - Deutsche Terminborse/Eurex - Hong Kong Futures Exchange Ltd. - International Petroleum Exchange of London Ltd. - Italian Derivatives Market - London International Financial Futures Exchange Ltd. - London Commodity Exchange - London Metal Exchange - London Securities and Derivatives Exchange - Marche a Terme International de France - MEFF Renta Fija - MEFF Renta Variable - Montreal Exchange - New Zealand Futures and Options Exchange - Osaka Securities Exchange - Singapore International Monetary Exchange - Swiss Options and Financial Futures Exchange AG - Sydney Futures Exchange - Tokyo Commodity Exchange - Tokyo Grain Exchange - Tokyo International Financial Futures Exchange - Tokyo Stock Exchange - Winnipeg Commodity Exchange In connection with foreign futures and options contracts, the partnerships' assets may be deposited by the commodity brokers in accounts with non-U.S. banks and foreign brokers that are segregated on the books of those banks or brokers for the benefit of their customers. All non-U.S. banks and foreign brokers will be qualified depositories pursuant to relevant CFTC Advisories. All non-U.S. banks will be subject to the local bank regulatory authorities, and the foreign brokers will be members of the exchanges on which the futures and option trades are to be executed and will be subject to the regulatory authorities in the jurisdictions in which they operate. 26 At each monthly closing, the trading advisors for each partnership are currently allocated the net proceeds from additional investments received by that partnership, and redemptions from that partnership are allocated to them, in the following proportions:
PERCENTAGE OF NET ASSETS ALLOCATED TO EACH TRADING ADVISOR AS OF SPECTRUM SELECT ADDITIONS REDEMPTIONS DECEMBER 31, 2000 - --------------- --------- ----------- ------------------- % % % EMC Capital Management, Inc........... 0 0 14.6 Northfield Trading L.P.*.............. N/A N/A N/A Rabar Market Research, Inc............ 50 50 44.9 Sunrise Capital Management, Inc....... 50 50 40.5 SPECTRUM TECHNICAL - ---------------------------------------- Campbell & Company, Inc............... 33 1/3 25 31.1 Chesapeake Capital Corporation........ 33 1/3 25 23.4 John W. Henry & Company, Inc. Original Investment Program......... 16 2/3 25 20.4 Financial and Metals Portfolio...... 16 2/3 25 25.1 SPECTRUM STRATEGIC - ---------------------------------------- Allied Irish Capital Management, Ltd................................. 50 50 35.8 Blenheim Investments, Inc............. 0 0 33.3 Eclipse Capital Management, Inc....... 50 50 30.9 SPECTRUM GLOBAL BALANCED - ---------------------------------------- RXR, Inc.............................. 100 100 100 SPECTRUM CURRENCY - ---------------------------------------- John W. Henry & Company, Inc.......... 50 50 51.0 Sunrise Capital Partners, LLC......... 50 50 49.0 SPECTRUM COMMODITY - ---------------------------------------- Morgan Stanley Dean Witter Commodities Management Inc...................... 100 100 100
- --------- * Northfield will be added as a trading advisor effective June 1, 2001. Commencing June 1, 2001, the net assets allocated to each trading advisor shall be approximately: EMC (15%), Northfield (15%), Rabar (35%), and Sunrise (35%). In addition, additions and redemptions shall be allocated as follows: EMC (0%), Northfield (33 1/3%), Rabar (33 1/3%), and Sunrise (33 1/3%). In the future, the proceeds from each monthly closing and redemptions may be allocated in different proportions. Further, the general partner may adjust the portion of a partnership's assets traded by a trading advisor through reallocations of assets among the partnership's trading advisors. The assets of the partnerships are not commingled with the assets of one another or any other entity. Margin deposits and deposits of assets with a commodity broker do not constitute commingling. INTEREST CREDITS The partnerships' funds held by the commodity brokers will either be held and invested together with other customer segregated or secured funds of the commodity brokers, or will be held in non-interest-bearing bank accounts. In either case, Dean Witter will credit each partnership with interest income at each month-end at the rate earned by Dean Witter on its U.S. Treasury bill investments with customer segregated funds as if 80% (100% in the case of Spectrum Global Balanced) of each partnership's average daily net assets for the month were invested in U.S. Treasury bills at such rate. For purposes of these interest credits, daily funds do not include monies due a partnership on or with respect to futures, forwards or options contracts which have not been received. Dean Witter retains any interest earned in excess of the interest credited by Dean Witter to the partnerships. 27 To the extent the partnerships' funds are held by the commodity brokers in customer segregated accounts relating to trading in U.S. exchange-traded futures and options, those funds, along with segregated funds of other customers in the accounts, may be invested by the commodity brokers, under applicable CFTC regulations, only in instruments that are obligations of the U.S., general obligations of any state or any political subdivision thereof, or obligations fully guaranteed as to principal and interest by the U.S., or in designated reverse repurchase agreements with respect to those instruments. To the extent the partnerships' funds are held by the commodity brokers in secured accounts relating to trading in futures or options contracts on non-U.S. exchanges or in forward contracts, such funds may be invested by the commodity brokers, under applicable CFTC regulations, only in the instruments described above for customer segregated funds, in equity and debt securities traded on established securities markets in the U.S., and in commercial paper and other debt instruments that are rated in one of the top two rating categories by Moody's Investor Service, Inc. or Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. A significant portion of the partnerships' funds held by Dean Witter will be held in secured accounts and will be invested in short-term commercial paper rated AAA or the equivalent or in other permitted debt instruments rated AAA or the equivalent. To the extent that the partnerships' funds are held in non-interest-bearing bank accounts, Dean Witter or its affiliates will benefit from compensating balance treatment in connection with Dean Witter's designation of a bank or banks in which the partnership's assets are deposited, meaning that Dean Witter or its affiliates will receive favorable loan rates from such bank or banks by reason of such deposits. To the extent that any excess interest and compensating balance benefits to Dean Witter or its affiliates exceed the interest Dean Witter is obligated to credit to the partnerships, they will not be shared with the partnerships. 28 THE SPECTRUM SERIES GENERAL The Spectrum Series presently consists of six limited partnerships each formed under the laws of Delaware: Spectrum Select, Spectrum Technical, Spectrum Strategic, Spectrum Global Balanced, Spectrum Currency, and Spectrum Commodity.
DATE PARTNERSHIP DATE PARTNERSHIP BEGAN OR IS EXPECTED WAS FORMED TO BEGIN OPERATIONS ---------------- -------------------- Spectrum Select............................. March 21, 1991 August 1, 1991 Spectrum Technical.......................... April 29, 1994 November 2, 1994 Spectrum Strategic.......................... April 29, 1994 November 2, 1994 Spectrum Global Balanced.................... April 29, 1994 November 2, 1994 Spectrum Currency........................... October 20, 1999 July 3, 2000 Spectrum Commodity.......................... July 31, 1997 January 2, 1998
Each partnership calculates its net asset value per unit independently of the other partnerships. Each partnership's performance depends solely on the performance of its trading advisor(s). Each partnership is continuously offering its units for sale at monthly closings held as of the last day of each month. The purchase price per unit is equal to 100% of the net asset value of a unit as of the date of the monthly closing at which the general partner accepts a subscription. Following is a summary of information relating to the sale of units of each partnership through December 31, 2000:
NUMBER NET TOTAL GENERAL OF ASSET UNITS UNITS AVAILABLE PROCEEDS PARTNER LIMITED VALUE SOLD FOR SALE RECEIVED CONTRIBUTIONS PARTNERS PER UNIT -------------- --------------- ----------- ------------- -------- -------- $ $ $ Spectrum Select*.............. 4,888,419.632 6,111,580.368 309,663,034 1,680,000 16,091 23.57 Spectrum Technical............ 24,671,602.840 8,328,397.160 330,393,586 2,511,984 24,067 16.08 Spectrum Strategic............ 11,115,271.053 7,884,728.947 122,790,176 822,000 10,801 10.61 Spectrum Global Balanced...... 5,148,253.253 5,851,746.747 69,683,966 533,234 6,978 16.26 Spectrum Currency............. 1,460,031.957 10,539,968.043 15,168,701 1,544,645 1,260 11.17 Spectrum Commodity............ 277,607.062 6,722,392.938 43,351,187 430,000 2,537 7.85
- --------- * The number of units sold has been adjusted to reflect a 100-for-1 unit conversion that took place on June 1, 1998, when Spectrum Select became part of the Spectrum Series of partnerships. INVESTMENT OBJECTIVES The investment objective of each partnership is to achieve capital appreciation and, to a lesser extent in the case of Spectrum Global Balanced, to provide investors with the opportunity to diversify a portfolio of traditional investments consisting of stocks and bonds. While each partnership has the same overall investment objective and many of the trading advisors for the various partnerships trade in the same futures, forwards, and options contracts, each trading advisor has developed its own trading programs and trades futures, forwards, and options in a different manner. Each partnership has a different mix of trading advisors and trading programs. You should review and compare the specifics of each partnership, its terms, and its trading advisors before selecting one or more partnerships in which to invest. 29 MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. Spectrum Select currently utilizes three trading advisors, but commencing June 1, 2001, Northfield will be added as a fourth trading advisor. Each trading advisor will employ systematic, technical trading models. EMC uses an aggressive systematic trading approach that blends several independent methodologies designed to identify emerging trends and follow existing trends. This program seeks significant trends in favorable periods, while accepting a corresponding decline in unfavorable market cycles. Northfield uses a purely technical approach, utilizing price action itself as analyzed by charts, numerical indicators, pattern recognition, or other techniques designed to provide information about market direction. Rabar uses a systematic approach with discretion, limiting the equity committed to each trade, market, and sector. Rabar's trading program uses constant research and analysis of market behavior. Sunrise's investment approach attempts to detect a trend, or lack of a trend, with respect to a particular market by analyzing price movement and volatility over time. Sunrise's trading system consists of multiple, independent and parallel systems, each designed to seek out and extract different market inefficiencies over different time horizons. For a more detailed discussion of the Spectrum Select trading advisors and their various programs see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum Select L.P." on page - . MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. Spectrum Technical currently uses three trading advisors, each of whom employs technically based trading models to achieve its objective. Campbell uses a highly disciplined, systematic approach designed to detect and react to price movements in the futures and forwards markets. Campbell's core systematic approach has been used for over 20 years. The trading methodology employed by Chesapeake is based on the analysis of interrelated mathematical and statistical formulas, including the technical analysis of historical data, used to determine optimal price support and resistance levels and market entry and exit points in various futures, forwards and options markets. This trading system was designed in the 1980s and is continually updated based on research. JWH's trading programs use disciplined systematic quantitative methodologies to identify short- to long-term trends in both the financial and non-financial futures markets. These programs are differentiated by a distinctive style, timing and market characteristic. For a more detailed discussion of the Spectrum Technical trading advisors and their various programs see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum Technical L.P." on page - . MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. Spectrum Strategic currently utilizes three trading advisors, each of whom employ discretionary and systematic trading approaches that seek to profit through the analysis of fundamental and technical market information. Allied Irish employs multiple investment professionals using a discretionary approach. Several strategies are applied to investments in a broad range of financial instruments. Blenheim's program has a strong global concentration, using a discretionary approach supplemented by a systematic and mathematical investment process. Investments are made in markets in which Blenheim has a clear understanding of fundamental factors and geopolitical forces that influence price behavior. Eclipse employs a systematic trading approach using multiple trend-following and macroeconomic driven models. A key characteristic of the Eclipse trading program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. For a more detailed discussion of the Spectrum Strategic trading advisors and their various programs see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum Strategic L.P." on page - . MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. Spectrum Global Balanced utilizes one trading advisor that trades a multi-strategy portfolio of futures forwards and options, consisting of world equity, global bonds, currency, and commodity markets. Within the long biased global stock and global bond components of the fund, RXR, Inc. analyzes various fundamental information. Within the long and short global currency and commodity components of the fund, RXR employs a technical trend-following trading system. RXR uses a computer-based model to reallocate assets among various market sectors within each of the independent strategies. For a more detailed discussion of RXR, the sole trading advisor for Spectrum Global Balanced, and its trading program, see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum Global Balanced L.P." on page - . 30 MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. Spectrum Currency will utilize two trading advisors, each of whom employs proprietary trading models that seek to identify favorable price relationships between and among various global currency markets through the disciplined analysis of technical market information. JWH employs the International Foreign Exchange Program, which seeks to identify and capitalize on intermediate-term price movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. Sunrise Capital Partners' Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as crossrates selectively against each other and/or as outrights against the U.S. dollar. For a more detailed discussion of the Spectrum Currency trading advisors see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum Currency L.P." on page - . MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. Spectrum Commodity utilizes one trading advisor to engage in the long-only speculative trading of a diverse mix of tangible commodity futures, including metals, energy, food, fiber and agricultural markets. As its primary focus is tangible commodities, Spectrum Commodity does not participate in financial markets, such as interest rate, stock index, or currency futures and options. The trading program seeks to benefit from supply and demand dynamics, based on consumer and producer reactions to price movements, by over-weighting exposure to commodities that are historically undervalued and showing signs of strengthening, and under-weighting exposure to those markets that are historically overvalued and showing signs of weakening. For a more detailed discussion of the trading advisor for Spectrum Commodity and its trading program, see "The Trading Advisor--Morgan Stanley Dean Witter Spectrum Commodity L.P." on page - . TRADING POLICIES Material changes to the trading policies described below may be made only with the prior written approval of limited partners owning more than 50% of units of the relevant partnership then outstanding. The general partner will notify the limited partners within seven business days after any material change in the partnership's trading policies so approved by the limited partners. The trading advisors will manage the funds allocated to them in accordance with the following trading policies. TRADING POLICIES FOR ALL PARTNERSHIPS: - The partnership will not employ the trading technique commonly known as "pyramiding," in which the speculator uses unrealized profits on existing positions in a given futures interests due to favorable price movement as margin specifically to buy or sell additional positions in the same or a related futures interest. Taking into account the partnership's open trade equity (I.E., the profit or loss on an open futures interest position) on existing positions in determining generally whether to acquire additional futures interest positions on behalf of the partnership will not be considered to constitute "pyramiding." - The partnership will not under any circumstances lend money to affiliated entities or otherwise. The partnership will not utilize borrowings except if the partnership purchases or takes delivery of commodities. If the partnership borrows money from the general partner or any "affiliate" thereof (as defined in Section 14(c) of the limited partnership agreement), the lending entity in such case (the "lender") may not receive interest in excess of its interest costs, nor may the lender receive interest in excess of the amounts which would be charged the partnership (without reference to the general partner's financial abilities or guarantees) by unrelated banks on comparable loans for the same purpose, nor may the lender or any affiliate thereof receive any points or other financing charges or fees regardless of the amount. Use of lines of credit in connection with its forward trading does not, however, constitute borrowing for purposes of this trading limitation. 31 - The partnership will not permit "churning" of the partnership's assets. Churning is the unnecessary execution of trades so as to generate increased brokerage commissions. TRADING POLICY FOR ALL PARTNERSHIPS EXCEPT SPECTRUM COMMODITY: - The partnership will trade currencies and other commodities in the interbank and forward contract markets only with banks, brokers, dealers, and other financial institutions which the general partner, in conjunction with Dean Witter, has determined to be creditworthy. In determining the creditworthiness of a counterparty to a forward contract, the general partner and Dean Witter will consult with the Corporate Credit Department of Dean Witter. TRADING POLICIES FOR ALL PARTNERSHIPS EXCEPT SPECTRUM GLOBAL BALANCED, SPECTRUM CURRENCY, AND SPECTRUM COMMODITY: - The trading advisors will trade only in those futures interests that have been approved by the general partner. The partnership normally will not establish new positions in a futures interest for any one contract month or option if such additional positions would result in a net long or short position for that futures interest requiring as margin or premium more than 15% of the partnership's net assets. In addition, the partnership will, except under extraordinary circumstances, maintain positions in futures interests in at least two market segments (I.E., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. - The partnership will not acquire additional positions in any futures interest if such additional positions would result in the aggregate net long or short positions for all futures interests requiring as margin or premium for all outstanding positions more than 66 2/3% of the partnership's net assets. Under certain market conditions, such as an abrupt increase in margins required by a commodity exchange or its clearinghouse or an inability to liquidate open positions because of daily price fluctuation limits, or both, the partnership may be required to commit as margin amounts in excess of the foregoing limit. In such event, the trading advisors will reduce their open positions to comply with the foregoing limit before initiating new positions. - The trading advisors will not generally take a position after the first notice day in any futures interest during the delivery month of that futures interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. TRADING POLICY FOR SPECTRUM SELECT AND SPECTRUM COMMODITY ONLY: - The partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). TRADING POLICIES FOR SPECTRUM GLOBAL BALANCED ONLY: - The trading advisor will trade only in those futures interests that have been approved by the general partner. In addition, the partnership will, except under extraordinary circumstances, maintain positions in futures interests in at least two market segments (I.E., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. - The trading advisors will not generally take a position after the first notice day in any futures interest during the delivery month of that futures interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. The partnership may, with the general partner's prior approval, purchase "cash" stocks and bonds, or options on stock or bond indices, on a temporary basis under unusual circumstances in which it is not practicable or economically feasible to establish the partnership's stock index or bond portfolios in the futures markets, and may acquire "cash" instruments in its short-term interest rate futures component. 32 PERFORMANCE RECORDS A summary of performance information for each partnership from its commencement of operations through December 31, 2000 is set forth in Capsules I through VI below. All performance information has been calculated on an accrual basis in accordance with accounting principles generally accepted in the United States of America. You should read the footnotes on page - , which are an integral part of the following capsules. Since Spectrum Currency has a limited trading history, Capsules V-A and V-B below are presented to show the actual and pro forma annual and year-to-date performance information for Dean Witter Cornerstone IV, which is another currency-only fund operated by the general partner and traded by JWH and Sunrise, the same trading advisors that trade for Spectrum Currency. JWH and Sunrise trade for Spectrum Currency using the same trading strategies that they employ for Cornerstone IV. You are cautioned that the information set forth in each capsule is not indicative of, and has no bearing on, any trading results that may be attained by any partnership in the future. Past results are not a guarantee of future results. We cannot assure you that a partnership will be profitable or will avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a partnership's total income and may generate profits where there have been realized or unrealized losses from futures, forwards, and options trading. CAPSULE I PERFORMANCE OF SPECTRUM SELECT Type of pool: publicly-offered fund Inception of trading: August 1991 Aggregate subscriptions: $311,343,034 Current capitalization: $220,729,969 Current net asset value per unit: $23.57 Worst monthly % drawdown past five years: (12.11)% (February 1996) Worst monthly % drawdown since inception: (13.72)% (January 1992) Worst month-end peak-to-valley drawdown past five years: (26.78)% (15 months, June 1995-August 1996) Worst month-end peak-to-valley drawdown since inception: (26.78)% (15 months, June 1995-August 1996) Cumulative return since inception: 135.70%
MONTHLY PERFORMANCE -------------------------------------------------------------------------------- MONTH 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 - ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- % % % % % % % % % % January..................... 2.86 (2.90) 0.87 3.93 (0.38) (8.13) (11.67) 0.31 (13.72) February.................... (2.17) 5.45 2.16 4.75 (12.11) 9.61 (6.79) 14.84 (6.09) March....................... (2.08) (2.50) 0.23 0.31 (0.22) 20.58 12.57 (0.59) (3.91) April....................... (3.48) 3.70 (6.72) (5.46) 4.07 9.06 (0.95) 10.35 (1.86) May......................... 1.58 (4.38) 1.79 (1.18) (3.65) 11.08 6.84 1.95 (1.42) June........................ (4.44) 0.34 0.93 0.16 1.37 (1.70) 10.30 0.21 7.19 July........................ (2.42) (4.40) (0.97) 9.74 (1.44) (10.61) (4.91) 13.90 10.72 August...................... 4.71 (0.44) 19.19 (6.22) (0.46) (4.81) (6.95) (0.95) 6.69 (6.20) September................... (1.84) 1.69 6.24 0.93 3.34 (7.76) 1.25 (4.13) (5.24) 6.32 October..................... 0.44 (8.39) (5.14) (3.77) 13.30 (3.35) (4.78) (4.97) (3.17) (2.28) November.................... 6.47 3.29 (4.16) 0.62 6.76 1.37 5.68 (1.30) 1.39 (2.93) December.................... 8.52 1.62 1.19 3.35 (3.36) 11.19 (2.72) 8.14 (3.58) 38.67 Compound Annual/ Period Rate of Return..... 7.14 (7.56) 14.15 6.22 5.27 23.63 (5.13) 41.63 (14.45) 31.18 (5 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 33 CAPSULE II PERFORMANCE OF SPECTRUM TECHNICAL Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $332,905,570 Current capitalization: $268,133,092 Current net asset value per unit: $16.08 Worst monthly % drawdown past five years: (9.96)% (October 1999) Worst monthly % drawdown since inception: (9.96)% (October 1999) Worst month-end peak-to-valley drawdown past five years: (24.32)% (17 months, May 1999-September 2000) Worst month-end peak-to-valley drawdown since inception: (24.32)% (17 months, May 1999-September 2000) Cumulative return since inception: 60.80%
MONTHLY PERFORMANCE ---------------------------------------------------------------- MONTH 2000 1999 1998 1997 1996 1995 1994 - ----- ---- ---- ---- ---- ---- ---- ---- % % % % % % % January.............................. 1.21 (4.96) (1.16) 3.67 4.78 (1.84) February............................. (1.19) 2.48 0.41 1.13 (6.39) 5.10 March................................ (1.54) (2.48) 1.31 (1.82) 1.24 10.21 April................................ (4.02) 7.18 (4.62) (2.93) 4.82 3.60 May.................................. (0.43) (5.00) 3.28 (3.75) (3.84) 0.69 June................................. (2.78) 5.13 (1.10) 0.69 3.21 (1.12) July................................. (3.96) (3.90) (0.98) 9.33 (4.80) (2.44) August............................... 3.74 0.95 10.29 (5.97) (0.35) (0.63) September............................ (8.61) (1.51) 4.35 1.85 5.50 (3.33) October.............................. 2.90 (9.96) (0.73) 0.36 9.92 (0.09) November............................. 12.28 1.84 (6.17) 1.01 8.34 0.93 (0.90) December............................. 12.06 3.83 5.98 4.57 (3.88) 6.09 (1.31) Compound Annual/ Period Rate of Return.............. 7.85 (7.51) 10.18 7.49 18.35 17.59 (2.20) (2 months)
CAPSULE III PERFORMANCE OF SPECTRUM STRATEGIC Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $123,612,176 Current capitalization: $74,234,449 Current net asset value per unit: $10.61 Worst monthly % drawdown past five years: (18.47)% (February 2000) Worst monthly % drawdown since inception: (18.47)% (February 2000) Worst month-end peak-to-valley drawdown past five years: (43.28)% (10 months, January 2000-October 2000) Worst month-end peak-to-valley drawdown since inception: (43.28)% (10 months, January 2000-October 2000) Cumulative return since inception: 6.10%
MONTHLY PERFORMANCE ---------------------------------------------------------------- MONTH 2000 1999 1998 1997 1996 1995 1994 - ----- ---- ---- ---- ---- ---- ---- ---- % % % % % % % January................................. (1.96) (3.55) 5.32 (0.66) 3.71 (3.50) February................................ (18.47) 11.76 (3.37) 10.09 (10.29) 1.45 March................................... (2.05) (3.45) 0.37 6.77 (0.97) 7.86 April................................... (10.15) 2.00 (11.06) (6.90) 6.08 0.00 May..................................... 10.13 (13.38) (7.40) 0.78 (3.05) (0.66) June.................................... (7.82) 21.85 (0.89) (1.63) (2.86) (6.38) July.................................... 3.71 (1.00) (5.26) 7.65 (4.91) (0.81) August.................................. (8.26) 5.31 11.82 (4.93) 1.14 4.00 September............................... (10.40) 13.27 19.03 (6.03) 5.11 (0.39) October................................. (6.84) (9.55) 8.44 (6.24) 2.92 0.30 November................................ 6.56 4.85 (7.94) (2.22) 3.49 2.76 0.10 December................................ 10.75 9.39 2.76 5.62 (2.65) 6.24 0.00 Compound Annual/ Period Rate of Return................. (33.06) 37.23 7.84 0.37 (3.53) 10.49 0.10 (2 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 34 CAPSULE IV PERFORMANCE OF SPECTRUM GLOBAL BALANCED Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $70,217,200 Current capitalization: $55,879,750 Current net asset value per unit: $16.26 Worst monthly % drawdown past five years: (7.92)% (February 1996) Worst monthly % drawdown since inception: (7.92)% (February 1996) Worst month-end peak-to-valley drawdown past five years: (10.64)% (4 months, February 1996-May 1996) Worst month-end peak-to-valley drawdown since inception: (10.64)% (4 months, February 1996-May 1996) Cumulative return since inception: 62.60%
MONTHLY PERFORMANCE ------------------------------------------------------------------------- MONTH 2000 1999 1998 1997 1996 1995 1994 - ----- ---- ---- ---- ---- ---- ---- ---- % % % % % % % January.................................... (0.93) (0.06) 2.25 3.35 0.41 1.32 February................................... 0.94 (0.06) 1.49 3.16 (7.92) 4.62 March...................................... 3.10 0.00 2.24 (2.50) (1.08) 2.88 April...................................... (4.57) 4.13 (1.78) (1.65) 1.27 2.15 May........................................ (1.32) (4.99) (0.35) 1.68 (3.13) 4.38 June....................................... (0.26) 2.28 0.00 3.64 0.46 0.79 July....................................... (2.18) (1.67) (1.19) 11.89 0.83 (1.39) August..................................... 3.01 (0.19) 2.55 (5.92) (0.82) (1.41) September.................................. (3.94) (0.50) 5.11 3.26 2.30 1.61 October.................................... 2.25 (1.77) 1.18 (1.69) 3.77 0.26 November................................... (0.52) 1.93 2.66 (0.37) 4.76 2.72 (0.50) December................................... 5.79 1.96 1.27 3.07 (3.88) 2.99 (1.21) Compound Annual/ Period Rate of Return.................... 0.87 0.75 16.36 18.23 (3.65) 22.79 (1.70) (2 months)
CAPSULE V PERFORMANCE OF SPECTRUM CURRENCY Type of pool: publicly-offered fund Inception of trading: July 3, 2000 Aggregate subscriptions: $16,713,346 Current capitalization: $15,707,232 Current net asset value per unit: $11.17 Worst monthly % drawdown: (1.64)% (November 2000) Worst month-end peak-to-valley drawdown: (1.64)% (1 month, November 2000) Cumulative return since inception: 11.70%
MONTHLY PERFORMANCE ----------- MONTH 2000 - ----- ---- % January..... February.... March....... April....... May......... June........ July........ 0.60 August...... 0.40 September... 1.39 October..... 7.32 November.... (1.64) December.... 3.30 Compound Annual/ Period Rate of Return... 11.70 (6 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 35 CAPSULE V-A PERFORMANCE OF CORNERSTONE IV Type of pool: publicly-offered fund Inception of trading: May 1987 Aggregate subscriptions: $168,095,656 Current capitalization: $99,618,555 Current net asset value per unit: $5,373.69 Worst monthly % drawdown past five years: (5.78)% (February 1996) Worst monthly % drawdown since inception: (21.04)% (September 1989) Worst month-end peak-to-valley past five years: (37.85)% (18 months, August 1993-January 1995) Worst month-end peak-to-valley since inception: (45.21)% (3 months, July 1989-September 1989) Cumulative return since inception: 451.15%
MONTHLY PERFORMANCE ---------------------------------------------------------------------------------------------- MONTH 2000 1999 1998 1997 1996 1995 1994 1993 1992 - ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- % % % % % % % % % January...................... 1.52 (2.37) (1.58) 5.34 3.19 (7.65) (1.12) (5.29) (9.64) February..................... (1.70) 0.84 (3.16) 6.55 (5.78) 6.27 (2.75) 12.92 (7.40) March........................ (0.55) 2.23 2.51 1.45 2.80 27.02 0.29 (2.55) 1.60 April........................ 6.91 1.19 (3.44) 1.23 2.97 2.39 (3.19) 0.03 (6.40) May.......................... (0.12) (1.37) 4.89 (5.54) 1.19 (4.83) (3.65) 3.95 2.71 June......................... (4.60) (0.67) 11.31 1.36 (0.23) (0.62) 6.72 0.92 15.10 July......................... 0.40 (5.28) 0.37 8.45 (3.51) (1.06) (4.21) 5.87 7.47 August....................... 0.38 1.27 0.78 2.68 (2.69) 5.49 (3.57) (5.57) 17.26 September.................... 1.45 2.39 (3.11) 0.45 0.32 (0.06) 1.66 (2.10) (4.21) October...................... 9.06 (3.77) 4.86 3.12 8.80 0.74 4.93 (7.48) (0.99) November..................... (1.20) 5.29 (4.24) 4.15 4.25 (2.57) (6.82) (7.50) 0.60 December..................... 3.01 (0.42) (1.49) 4.38 1.76 (0.52) (2.73) (0.78) (2.40) Compound Annual/ Period Rate of Return....... 14.74 (1.13) 6.80 38.41 12.97 22.96 (14.27) (9.12) 10.37 MONTHLY PERFORMANCE ------------------------------------------------------ MONTH 1991 1990 1989 1988 1987 - ----- ---- ---- ---- ---- ---- % % % % % January...................... (10.12) 3.15 15.72 (18.14) February..................... (6.91) 1.37 (14.64) 0.93 March........................ 26.00 6.09 3.44 5.06 April........................ 1.83 3.01 1.84 3.41 May.......................... 1.24 (8.53) 12.56 25.38 (9.60) June......................... 9.45 12.26 0.01 12.95 (0.75) July......................... (9.47) 23.25 (14.85) 6.93 (2.23) August....................... (8.50) 8.65 (18.51) 3.96 (12.61) September.................... 6.69 (3.02) (21.04) (4.46) 0.00 October...................... (5.29) 11.07 4.47 1.56 13.82 November..................... 5.26 (1.11) 11.40 8.77 11.80 December..................... 27.40 (5.74) 14.97 (7.80) 13.39 Compound Annual/ Period Rate of Return....... 33.52 57.77 (14.12) 37.51 10.61 (8 months)
Capsule V-B below is a pro forma of Capsule V-A, adjusted to reflect the actual brokerage, management, and incentive fees paid by Spectrum Currency, rather than those which were paid by Cornerstone IV. The footnotes following Capsule V-B are an integral part of Capsule V-B. You are cautioned that the performance information set forth in the following capsule performance summary is not indicative of, and has no bearing on, the performance results that may be attained by Spectrum Currency in the future. Past results are not a guarantee of future results. We cannot assure you that Spectrum Currency will be profitable or will avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of Spectrum Currency's total income and may generate profits where there have been realized or unrealized losses from futures, forwards, and options trading. CAPSULE V-B PRO FORMA PERFORMANCE OF CORNERSTONE IV Worst monthly % drawdown past five years: (7.40)% (January 1995) Worst monthly % drawdown since inception: (20.25)% (January 1988) Worst month-end peak-to-valley drawdown past five years: (36.70)% (18 months, August 1993-January 1995) Worst month-end peak-to-valley drawdown since inception: (46.06)% (3 months, July 1989-September 1989) Cumulative return since inception: 260.04%
MONTHLY PERFORMANCE ---------------------------------------------------------------------------------------------- MONTH 2000 1999 1998 1997 1996 1995 1994 1993 1992 - ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- % % % % % % % % % January...................... 1.65 (2.94) (1.79) 5.03 3.24 (7.40) (1.07) (6.01) (11.18) February..................... (1.83) 0.81 (4.00) 5.16 (5.75) 6.37 (2.55) 14.13 (8.51) March........................ (0.44) 2.62 2.82 0.05 2.76 26.63 0.54 (3.05) 2.13 April........................ 6.82 1.26 (4.19) 0.86 3.13 1.97 (3.15) 0.11 (6.35) May.......................... (0.28) (1.76) 5.36 (5.52) 1.19 (4.93) (3.64) 3.81 3.21 June......................... (4.60) (0.51) 11.07 1.40 (0.12) (0.77) 7.06 0.31 17.76 July......................... 0.27 (5.23) 0.04 7.64 (3.47) (1.21) (4.18) 5.57 7.82 August....................... 0.30 1.21 0.34 1.37 (2.67) 5.48 (3.47) (6.60) 15.49 September.................... 1.55 2.54 (3.77) (0.93) 0.58 (0.14) 1.78 (1.91) (7.67) October...................... 9.50 (3.83) 5.17 2.48 8.95 0.54 4.99 (7.18) (1.24) November..................... (1.67) 5.16 (5.22) 3.29 4.22 (2.74) (6.67) (7.11) 0.63 December..................... 3.52 (0.18) (1.90) 2.74 1.86 (0.66) (2.66) (0.49) (2.62) Compound Annual/ Period Rate of Return....... 14.93 (1.33) 2.67 25.53 13.91 21.28 (13.04) (10.03) 5.11 MONTHLY PERFORMANCE ------------------------------------------------------ MONTH 1991 1990 1989 1988 1987 - ----- ---- ---- ---- ---- ---- % % % % % January...................... (10.90) 3.65 15.33 (20.25) February..................... (6.64) 1.37 (17.52) 1.06 March........................ 27.47 5.86 3.31 5.89 April........................ 1.60 2.95 1.70 3.86 May.......................... 0.83 (7.87) 12.46 26.84 (10.59) June......................... 8.64 12.82 (1.97) 9.80 (0.25) July......................... (10.84) 21.34 (14.34) 6.55 (1.99) August....................... (8.24) 6.47 (17.71) 2.29 (12.15) September.................... 7.10 (6.30) (19.90) (6.28) (0.17) October...................... (4.95) 10.59 4.94 1.70 13.69 November..................... 5.45 (3.30) 11.67 8.11 10.51 December..................... 28.00 (7.17) 15.75 (9.32) 11.86 Compound Annual/ Period Rate of Return....... 32.66 43.03 (15.61) 25.71 7.74 (8 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 36 CAPSULE VI PERFORMANCE OF SPECTRUM COMMODITY Type of pool: publicly-offered fund Inception of trading: January 2, 1998 Aggregate subscriptions: $43,781,187 Current capitalization: $20,199,981 Current net asset value per unit: $7.85 Worst monthly % drawdown: (9.09)% (November 1998) Worst month-end peak-to-valley drawdown: (38.60)% (13 Months, February 1998-February 1999) Cumulative return since inception: (21.50)%
MONTHLY PERFORMANCE ------------------------ MONTH 2000 1999 1998 - ----- ---- ---- ---- % % % January..................................................... 3.02 (1.52) 1.30 February.................................................... (3.19) (3.86) (5.92) March....................................................... 0.79 8.68 0.10 April....................................................... (3.01) 2.37 (2.41) May......................................................... 4.31 (5.92) (6.87) June........................................................ (0.90) 4.45 (3.23) July........................................................ (3.65) 0.44 (6.44) August...................................................... 4.74 6.15 (7.90) September................................................... (0.52) 4.55 7.19 October..................................................... (2.86) (2.77) (3.48) November.................................................... 3.74 0.54 (9.09) December.................................................... 1.16 2.70 (3.38) Compound Annual/ Period Rate of Return...................................... 3.15 15.83 (34.30)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 37 FOOTNOTES TO CAPSULES I THROUGH VI "Aggregate subscriptions" represent the total amount received for all units purchased by investors since the partnership commenced operations. "Drawdown" is the decline in the net asset value per unit. "Worst month-end peak-to-valley drawdown" is the largest decline experienced by a partnership, determined in accordance with CFTC Rule 4.10(1) and represents the greatest cumulative percentage decline from any month-end net asset value per unit that occurs without such month-end net asset value per unit being equaled or exceeded by a subsequent month-end net asset value per unit. For example, if the net asset value per unit of a partnership was $15 and declined by $1 in each of January and February, increased by $1 in March and declined again by $2 in April, a "peak-to-valley drawdown" analysis conducted as of the end of April would consider that "drawdown" to be still continuing and to be $3 in amount because the $15 initial month-end net asset value per unit had not been equaled or exceeded by a subsequent month-end net asset value per unit, whereas if the net asset value of a unit had increased by $2 in March, the January-February drawdown would have ended as of the end of February at the $2 level because the $15 initial net asset value per unit would have been equaled in March. Such "drawdowns" are measured on the basis of month-end net asset values only, and do not reflect intra-month figures. "Monthly Performance" is the percentage change in net asset value per unit from one month to another. "Compound Annual/Period Rate of Return" is calculated by multiplying on a compound basis each of the monthly rates of return and not by adding or averaging such monthly rates of return. For periods of less than one year, the results are year-to-date. FOOTNOTES TO CAPSULE V-B PRO FORMA PERFORMANCE SUMMARY Capsule V-B above reflects pro forma rates of return for Spectrum Currency as if it were in operation during the same periods as Cornerstone IV. These rates of return are the result of the general partner making pro forma adjustments to the actual past performance record of Cornerstone IV, which results are set forth in Capsule V-A. The pro forma adjustments are an attempt to reflect the interest income, brokerage, management, and incentive fees that would have been paid or received by Spectrum Currency, as opposed to the actual fees and expenses applicable to Cornerstone IV. The pro forma calculations are made on a month-to-month basis, I.E., the pro forma adjustment to brokerage, management and incentive fees in one month do not affect the actual figures that are used in the following month for making the similar pro forma calculations for that period. Accordingly, the pro forma table does not reflect on a cumulative basis the effect of the differences between the fees paid by Spectrum Currency and the fees paid by Cornerstone IV. Furthermore, you must be aware that pro forma rates of return have inherent limitations: (A) pro forma adjustments are only an approximate means of modifying historical records to reflect certain aspects of the economic terms of a commodity pool, constitute no more than mathematical adjustments to actual performance numbers, and give no effect whatsoever to such factors as possible changes in trading approach that might have resulted from the different fee structure, interest income, and other factors; and (B) there are different means by which the pro forma adjustments could have been made. While the general partner believes that the information set forth in Capsule V-B is relevant to evaluating an investment in Spectrum Currency, no representation is or could be made that the capsule presents what the performance results would have been in the past or are likely to be in the future. Past results are not a guarantee of future results. The results presented in Capsule V-B are hypothetical because no trades were actually made under the terms set forth in the Capsule. ADDITIONAL PARTNERSHIPS In the future, additional partnerships may be added to the Spectrum Series of partnerships and units of limited partnership interest of such partnerships may be offered pursuant to a separate prospectus or an updated version of, or supplement to, this prospectus. Such partnerships will generally have different 38 trading advisors and may have substantially different trading approaches or fee structures. You should carefully review any such separate prospectus, updated version of, or supplement to, this prospectus before making the decision to purchase units in any new Spectrum Series partnership. AVAILABILITY OF EXCHANGE ACT REPORTS The partnerships are required to file periodic reports with the SEC, such as annual and quarterly reports and proxy statements. You may read any of these filed documents, or obtain copies by paying prescribed charges, at the SEC's public reference rooms located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The partnerships' SEC filings are also available to the public from the SEC's Web site at "http://www.sec.gov." Their SEC file numbers are 0-19511 (Spectrum Select), 0-26338 (Spectrum Technical), 0-26280 (Spectrum Strategic), 0-26340 (Spectrum Global Balanced), 0-31563 (Spectrum Currency), and 0-24035 (Spectrum Commodity). 39 SELECTED FINANCIAL DATA The following are the results of operations for each partnership for the periods indicated. Per unit results for Spectrum Select have been adjusted to reflect a 100-for-1 unit conversion that became effective on June 1, 1998. SPECTRUM SELECT
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- $ $ $ $ $ REVENUES Trading Profit (Loss): Realized 6,845,291 (1,351,849) 36,087,729 15,940,851 26,876,393 Net change in unrealized 18,665,233 (1,547,990) (1,192,107) 3,149,167 (10,950,217) ----------- ----------- ----------- ----------- ----------- Total Trading Results 25,510,524 (2,899,839) 34,895,622 19,090,018 15,926,176 Interest income (Dean Witter) 9,573,095 7,678,789 6,883,110 7,405,511 6,120,347 ----------- ----------- ----------- ----------- ----------- Total Revenues 35,083,619 4,778,950 41,778,732 26,495,529 22,046,523 ----------- ----------- ----------- ----------- ----------- EXPENSES Brokerage fees (Dean Witter) 14,706,945 15,188,479 11,360,166 9,777,851 10,641,478 Management fees 6,085,629 6,284,885 5,202,158 5,239,533 4,583,197 Incentive fees -- -- 1,832,021 49,989 175,796 Transaction fees and costs -- -- 625,327 1,370,439 1,104,011 Administrative expenses -- -- 64,000 114,000 128,000 ----------- ----------- ----------- ----------- ----------- Total Expenses 20,792,574 21,473,364 19,083,672 16,551,812 16,632,482 ----------- ----------- ----------- ----------- ----------- NET INCOME (LOSS) 14,291,045 (16,694,414) 22,695,060 9,943,717 5,414,041 =========== =========== =========== =========== =========== NET INCOME (LOSS) ALLOCATION: Limited partners 14,165,099 (16,455,697) 22,302,202 9,781,168 5,283,411 General partner 125,946 (238,717) 392,858 162,549 130,630 NET INCOME (LOSS) PER UNIT: Limited partners 1.57 (1.80) 2.95 1.22 .98 General partner 1.57 (1.80) 2.95 1.22 .98 TOTAL ASSETS AT END OF PERIOD 224,581,554 219,366,812 202,668,038 169,541,807 167,588,012 TOTAL NET ASSETS AT END OF PERIOD 220,729,969 213,805,674 200,082,516 166,773,321 163,786,285 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited partners 23.57 22.00 23.80 20.85 19.62 General partner 23.57 22.00 23.80 20.85 19.62
SPECTRUM TECHNICAL
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- $ $ $ $ $ REVENUES Trading Profit (Loss): Realized 12,255,064 726,179 35,224,194 13,777,460 26,334,748 Net change in unrealized 22,006,013 (872,972) 6,612,556 9,762,823 (1,552,659) ----------- ----------- ----------- ----------- ----------- Total Trading Results 34,261,077 (146,793) 41,836,750 23,540,283 24,782,089 Interest income (Dean Witter) 11,613,896 9,593,178 8,103,423 5,987,304 3,242,977 ----------- ----------- ----------- ----------- ----------- Total Revenues 45,874,973 9,446,385 49,940,173 29,527,587 28,025,066 ----------- ----------- ----------- ----------- ----------- EXPENSES Brokerage fees (Dean Witter) 17,835,223 19,176,380 15,543,787 11,617,770 6,997,531 Management fees 9,595,464 10,580,071 8,403,764 5,832,758 3,273,649 Incentive fees 166,085 430,097 3,191,252 369,975 1,852,569 ----------- ----------- ----------- ----------- ----------- Total Expenses 27,596,772 30,186,548 27,138,803 17,820,503 12,123,749 ----------- ----------- ----------- ----------- ----------- NET INCOME (LOSS) 18,278,201 (20,740,163) 22,801,370 11,707,084 15,901,317 =========== =========== =========== =========== =========== NET INCOME (LOSS) ALLOCATION: Limited partners 18,053,408 (20,531,494) 22,571,217 11,589,197 15,737,852 General partner 224,793 (208,669) 230,153 117,887 163,465 NET INCOME (LOSS) PER UNIT: Limited partners 1.17 (1.21) 1.49 1.02 2.11 General partner 1.17 (1.21) 1.49 1.02 2.11 TOTAL ASSETS AT END OF PERIOD 273,695,028 274,233,195 258,673,911 184,769,817 114,822,056 TOTAL NET ASSETS AT END OF PERIOD 268,133,092 268,755,718 255,101,434 181,950,507 112,985,629 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited partners 16.08 14.91 16.12 14.63 13.61 General partner 16.08 14.91 16.12 14.63 13.61
40 SPECTRUM STRATEGIC
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- $ $ $ $ $ REVENUES Trading Profit (Loss): Realized (23,193,914) 32,274,037 7,945,575 1,297,824 4,980,402 Net change in unrealized (7,577,681) 4,264,478 2,771,722 2,387,258 (1,679,048) ----------- ----------- ---------- ---------- ---------- Total Trading Results (30,771,595) 36,538,515 10,717,297 3,685,082 3,301,354 Interest income (Dean Witter) 3,832,634 3,017,103 2,379,478 2,304,248 1,604,026 ----------- ----------- ---------- ---------- ---------- Total Revenues (26,938,961) 39,555,618 13,096,775 5,989,330 4,905,380 ----------- ----------- ---------- ---------- ---------- EXPENSES Brokerage fees (Dean Witter) 5,798,093 5,837,887 4,402,540 4,414,327 3,398,205 Management fees 2,880,999 3,137,509 2,342,447 2,212,788 1,587,213 Incentive fees 1,269,237 2,451,152 1,336,693 427,094 726,825 ----------- ----------- ---------- ---------- ---------- Total Expenses 9,948,329 11,426,548 8,081,680 7,054,209 5,712,243 ----------- ----------- ---------- ---------- ---------- NET INCOME (LOSS) (36,887,290) 28,129,070 5,015,095 (1,064,879) (806,863) =========== =========== ========== ========== ========== NET INCOME (LOSS) ALLOCATION: Limited partners (36,503,461) 27,829,050 4,958,188 (1,054,657) (799,980) General partner (383,829) 300,020 56,907 (10,222) (6,883) NET INCOME (LOSS) PER UNIT: Limited partners (5.24) 4.30 .84 0.04 (.39) General partner (5.24) 4.30 .84 0.04 (.39) TOTAL ASSETS AT END OF PERIOD 76,427,098 109,444,028 71,445,333 61,010,043 47,089,676 TOTAL NET ASSETS AT END OF PERIOD 74,234,449 107,692,521 70,421,775 59,095,581 45,118,877 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited partners 10.61 15.85 11.55 10.71 10.67 General partner 10.61 15.85 11.55 10.71 10.67
SPECTRUM GLOBAL BALANCED
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- $ $ $ $ $ REVENUES Trading Profit (Loss): Realized (2,091,009) 2,425,585 5,113,920 3,683,460 177,564 Net change in unrealized 2,507,530 (1,157,073) 1,285,628 464,966 (175,835) ---------- ---------- ---------- ---------- ---------- Total Trading Results 416,521 1,268,512 6,399,548 4,148,426 1,729 Interest income (Dean Witter) 3,275,958 2,385,751 1,642,542 1,145,033 891,897 ---------- ---------- ---------- ---------- ---------- Total Revenues 3,692,479 3,654,263 8,042,090 5,293,459 893,626 ---------- ---------- ---------- ---------- ---------- EXPENSES Brokerage fees (Dean Witter) 2,558,008 2,387,515 1,591,467 1,124,531 1,030,310 Management fees 695,117 648,787 422,960 269,162 221,282 Incentive fees -- 215,651 449,775 300,250 -- ---------- ---------- ---------- ---------- ---------- Total Expenses 3,253,125 3,251,953 2,464,202 1,693,943 1,251,592 ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) 439,354 402,310 5,577,888 3,599,516 (357,966) ========== ========== ========== ========== ========== NET INCOME (LOSS) ALLOCATION: Limited partners 433,786 397,258 5,518,127 3,561,537 (354,537) General partner 5,568 5,052 59,761 37,979 (3,429) NET INCOME (LOSS) PER UNIT: Limited partners .14 .12 2.25 2.12 (.44) General partner .14 .12 2.25 2.12 (.44) TOTAL ASSETS AT END OF PERIOD 56,740,136 58,807,588 46,317,786 25,923,024 19,620,770 TOTAL NET ASSETS AT END OF PERIOD 55,879,750 57,864,012 45,913,872 25,683,236 18,706,255 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited partners 16.26 16.12 16.00 13.75 11.63 General partner 16.26 16.12 16.00 13.75 11.63
41 SPECTRUM CURRENCY
FOR THE PERIOD FROM JULY 3, 2000 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2000 ------------------- REVENUES Trading Profit: Realized 1,126,201 Net change in unrealized 555,569 ---------- Total Trading Results 1,681,770 Interest income (Dean Witter) 236,461 ---------- Total Revenues 1,918,231 ---------- EXPENSES Brokerage fees (Dean Witter) 249,571 Incentive fees 188,423 Management fees 171,693 ---------- Total Expenses 609,687 ---------- NET INCOME 1,308,544 ========== NET INCOME ALLOCATION: Limited partners 1,134,371 General partner 174,173 NET INCOME PER UNIT: Limited partners 1.17 General partner 1.17 TOTAL ASSETS AT END OF PERIOD 18,056,724 TOTAL NET ASSETS AT END OF PERIOD 15,707,232 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited partners 11.17 General partner 11.17
SPECTRUM COMMODITY
FOR THE FOR THE PERIOD FROM YEARS ENDED JANUARY 2, 1998 DECEMBER 31, (COMMENCEMENT OF ------------------------- OPERATIONS) TO 2000 1999 DECEMBER 31, 1998 ----------- ----------- ------------------- $ $ $ REVENUES Trading Profit (Loss): Realized 1,696,824 3,003,270 (11,870,063) Net change in unrealized (567,711) 1,178,071 (635,643) ---------- ---------- ----------- Total Trading Results 1,129,113 4,181,341 (12,505,706) Interest income (Dean Witter) 1,047,350 864,383 1,265,793 ---------- ---------- ----------- Total Revenues 2,176,463 5,045,724 (11,239,913) ---------- ---------- ----------- EXPENSES Brokerage fees (Dean Witter) 949,310 852,484 1,176,024 Management fees (Morgan Stanley Dean Witter Commodities Management) 546,187 583,893 805,496 Service fee (Demeter) 58,604 233,558 322,198 ---------- ---------- ----------- Total Expenses 1,554,101 1,669,935 2,303,718 ---------- ---------- ----------- NET INCOME (LOSS) 622,362 3,375,789 (13,543,631) ========== ========== =========== NET INCOME (LOSS) ALLOCATION: Limited partners 612,086 3,330,798 (13,398,948) General partner 10,276 44,991 (144,683) NET INCOME (LOSS) PER UNIT: Limited partners .24 1.04 (3.43) General partner .24 1.04 (3.43) TOTAL ASSETS AT END OF PERIOD 20,809,721 24,048,757 25,962,970 TOTAL NET ASSETS AT END OF PERIOD 20,199,981 23,640,470 24,908,316 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited partners 7.85 7.61 6.57 General partner 7.85 7.61 6.57
42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. LIQUIDITY The partnership deposits its assets with the commodity brokers in separate futures, forwards, and options trading accounts established for each trading advisor, which assets are used as margin to engage in trading. The assets are held in either non-interest-bearing bank accounts or in securities and instruments permitted by the CFTC for investment of customer segregated or secured funds. The partnership's assets held by the commodity brokers may be used as margin solely for the partnership's trading. Since the partnership's sole purpose is to trade in futures, forwards, and options, it is expected that the partnership will continue to own liquid assets for margin purposes. The partnership's investment in futures, forwards, and options may, from time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as "daily price fluctuations limits" or "daily limits." Trades may not be executed at prices beyond the daily limit. If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. These market conditions could prevent the partnership from promptly liquidating its futures or options contracts 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 prevent the partnership from promptly liquidating unfavorable positions in such markets, subjecting it to substantial losses. Either of these market conditions could result in restrictions on redemptions. The partnership has never had illiquidity affect a material portion of its assets. CAPITAL RESOURCES The partnership does not have, or expect to have, any capital assets. Redemptions, exchanges, and sales of additional units in the future will affect the amount of funds available for investments in futures, forwards, and options interests in subsequent periods. It is not possible to estimate the amount and therefore the impact of future redemptions. RESULTS OF OPERATIONS GENERAL. The partnership's results depend on its trading advisors and the ability of each trading advisor's trading program to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the partnership's operations for the three years ended December 31, 2000 and a general discussion of its trading activities during each period. Spectrum Select has restated all per unit amounts to reflect the 100-for-1 unit conversion that took place on June 1, 1998. It is important to note, however, that the trading advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the trading advisors or will be profitable in the future. Consequently, the results of operations of the partnership are difficult to discuss other than in the context of its trading advisors' trading activities on behalf of the partnership as a whole and how the partnership has performed in the past. 2000 RESULTS. Spectrum Select recorded a net profit during 2000. The most significant gains of approximately 9.3% were recorded in the global interest rate futures markets primarily during August, November, and December from long positions in U.S. interest rate futures as prices climbed higher amid a drop in stock prices and as fears of an economic slowdown drew investors to the perceived safety of government securities. Additional gains were recorded during December from long positions in European and Australian interest rate futures as prices in these markets rose amid the speculation that the U.S. Federal Reserve would lower interest rates in the near future following their decision to switch to an easing policy bias. In the currency markets, gains of approximately 8.2% were recorded primarily during January, March, April, and October from short positions in the euro and the Swiss franc as the value of 43 these European currencies weakened relative to the U.S. dollar amid skepticism about Europe's economic outlook. In the energy markets, gains of approximately 4.0% were recorded primarily during May, August, September, November, and December from long positions in natural gas futures as prices trended upward, amid supply and storage concerns. A portion of the partnership's overall gains was partially offset by losses of approximately 4.9% recorded in the global stock index futures markets primarily during mid-April from long positions in U.S. stock index futures as domestic equity prices declined following the release of an unexpected jump in the Consumer Price Index. During the first half of September, additional losses were recorded from long positions in U.S. stock index futures as prices declined due to jitters in the technology sector and a worrisome spike in oil prices. In the metals markets, losses of approximately 3.5% were experienced from long positions in copper and aluminum futures as prices moved lower during February, May, October, and December, after concerns mounted that demand would weaken amid a cooling of the U.S. economy. For the year ended December 31, 2000, Spectrum Select recorded total trading revenues, including interest income, of $35,083,619. Total expenses for the year were $20,792,574, resulting in net income of $14,291,045. The net asset value of a unit increased from $22.00 at December 31, 1999 to $23.57 at December 31, 2000. 1999 RESULTS. Spectrum Select recorded a net loss during 1999. The global interest rate futures markets experienced losses of approximately 3.27%, particularly from short-term price volatility in U.S. and European interest rate futures. Losses of approximately 2.07% were recorded during September from short positions in Australian bond futures as prices spiked higher on technically based buying and short covering. Losses were also recorded from short Japanese government bond futures positions early in the first quarter as prices surged higher in response to the Bank of Japan's aggressive easing of monetary policy. Additional losses were experienced later in the first quarter from newly established long positions, as prices retreated following comments by Bank of Japan Governor Masaru Hayami that he expected interest rates in Japan to rise over time. In the metals markets, losses of approximately 1.33% were experienced primarily from long silver futures positions, as prices declined during March after Berkshire Hathaway's annual report failed to provide any new information on the company's silver positions. During October, additional losses were recorded from long silver futures positions as prices decreased following the reversal lower in gold prices. Offsetting gains were recorded from long positions in gold futures as gold prices soared during September following the Bank of England's second gold auction and an announcement by several European central banks stating that they were to restrict the sales of gold reserves for five years. Gains of approximately 3.11% recorded in the energy markets helped to mitigate losses. Long futures positions in crude oil and its refined products proved profitable as oil prices trended significantly higher largely attributed to the news that both OPEC and non-OPEC countries had reached and adhered to an agreement to cut total output. For the year ended December 31, 1999, Spectrum Select's total trading revenues, including interest income, were $4,778,950. Total expenses for the year were $21,473,364, resulting in a net loss of $16,694,414. The net asset value of a unit in Spectrum Select decreased from $23.80 at December 31, 1998 to $22.00 at December 31, 1999. 1998 RESULTS. Spectrum Select recorded net profits during 1998. The partnership experienced the majority of the gains, approximately 18.62%, in the global interest rate futures markets, particularly from long positions in European, particularly German and French, U.S. and Japanese bond futures. Bond prices rallied in late August, as global stock prices plunged, especially after Russia's decision to halt trading in foreign currencies paralyzed that country's banking system and set off a "flight-to-quality" into the global fixed income markets. The subsequent volatility in the global financial markets and worldwide economic deterioration continued to drive these profitable trades through September, more than offsetting losses of approximately 4.82% experienced in metals futures. For the year ended December 31, 1998, Spectrum Select's total revenues, including interest income, were $41,778,732. Total expenses for the year were $19,083,672, resulting in net income of $22,695,060. The net asset value of a unit in Spectrum Select increased from $20.85 at December 31, 1997 to $23.80 at December 31, 1998. 44 To enhance the foregoing comparison of operations from year to year, you should examine, line by line, the partnership's Statements of Operations and Statements of Financial Condition. See "Selected Financial Data" and "Independent Auditor's Report and Financial Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this prospectus. FINANCIAL INSTRUMENTS The partnership is a party to financial instruments with elements of off-balance sheet market and credit risk. The partnership may trade futures and options in interest rates, stock indices, commodities, currencies, petroleum and precious metals. In entering into these contracts, the partnership is subject to the market risk that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the positions held by the partnership at the same time, and if the trading advisors were unable to offset positions of the partnership, the partnership could lose all of its assets and investors would realize a 100% loss. In addition to the trading advisors' internal controls, each trading advisor must comply with the trading policies of the partnership. The trading policies include standards for liquidity and leverage with which the partnership must comply. The trading advisors and the general partner monitor the partnership's trading activities to ensure compliance with the trading policies. The general partner may require a trading advisor to modify positions of the partnership if the general partner believes they violate the partnership's trading policies. In addition to market risk, in entering into futures, forwards, and options contracts there is a credit risk to the partnership that the counterparty on a contract will not be able to meet its obligations to the partnership. The ultimate counterparty or guarantor of the partnership for futures contracts traded in the U.S. and the foreign exchanges on which the partnership trades is the clearinghouse associated with such exchange. In general, a clearinghouse is backed by the membership of the exchange and will act in the event of non-performance by one of its members or one of its member's customers, which should significantly reduce this credit risk. For example, a clearinghouse may cover a default by 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 assessing its members. In cases where the partnership trades off-exchange forwards contracts with a counterparty, the sole recourse of the partnership will be the forward contracts counterparty. For a list of the foreign exchanges on which the partnership trades, see "Use of Proceeds" on page 21. FOR AN ADDITIONAL DISCUSSION OF THE CREDIT RISKS RELATING TO TRADING ON FOREIGN EXCHANGES SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN TRADING ON U.S. EXCHANGES" ON PAGE - . There is no assurance that a clearinghouse, exchange, or other exchange member will meet its obligations to the partnership, and the general partner and commodity brokers will not indemnify the partnership against a default by such parties. 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 or clearinghouse defaulting on trades effected for the broker's customers. Any such obligation on the part of a broker appears even less clear where the default occurs in a non-U.S. jurisdiction. The general partner deals with these credit risks of the partnership 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. The general partner, however, has installed a system which permits it to monitor the partnership's potential margin liability, exchange by exchange. As a result, the general partner is 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 minimum amount of diversification in the partnership's trading, usually over several different products. One of the aims of such trading policies has 45 been to reduce the credit exposure of the partnership to a single exchange and, historically, the partnership's exposure to one exchange 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, the general partner deals with the situation on a case by case basis, carefully weighing whether the increased level of credit exposure remains appropriate. Material changes to the trading policies may be made only with the prior written approval of the limited partners owning more than 50% of units then outstanding. Third, with respect to forward contract trading, the partnership trades with only those counterparties which the general partner, together with Dean Witter, have determined to be creditworthy. The partnership presently deals with Morgan Stanley as the sole counterparty on forward contracts. Inflation has not been a major factor in the partnership's operations. MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. LIQUIDITY See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Liquidity" on page - , which discussion is equally applicable to Spectrum Technical. CAPITAL RESOURCES See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Capital Resources" on page - , which discussion is equally applicable to Spectrum Technical. RESULTS OF OPERATIONS GENERAL. The partnership's results depend on its trading advisors and the ability of each trading advisor's trading programs to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the partnership's operations for the three years ended December 31, 2000, and a general discussion of its trading activities during each period. It is important to note, however, that the trading advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the trading advisors or will be profitable in the future. Consequently, the results of operations of the partnership are difficult to discuss other than in the context of its trading advisors' trading activities on behalf of the partnership as a whole and how the partnership has performed in the past. 2000 RESULTS. Spectrum Technical recorded a net profit during 2000. The most significant gains of approximately 14.1% were recorded in the energy markets primarily during May from long positions in natural gas futures as prices trended higher, as data released by the American Gas Association further confirmed fears that inventory levels remain low. During August, September, November, and December, additional gains were recorded from long positions in natural gas futures as prices climbed to all-time highs amid supply and storage concerns. Additional gains were recorded primarily during January, February, August, October, and November from long futures positions in crude oil and its refined products as oil prices increased on concerns about future output levels from the world's leading producer countries amid dwindling stockpiles and increasing demand. In the currency markets, gains of approximately 6.1% were recorded primarily during January, April, and October from short positions in the euro and the Swiss franc as the value of these European currencies weakened relative to the U.S. dollar amid skepticism about Europe's economic outlook. Additional gains were recorded during December from long positions in the euro and Swiss franc as their respective values reversed upward versus the U.S. dollar as a result of new confidence in the European economy and an overall skepticism regarding the U.S. economy. A portion of the partnership's overall gains was partially offset by losses of approximately 5.1% recorded in the metals markets primarily from short gold futures positions as gold prices spiked sharply higher in early February. Newly established long positions in gold futures produced additional losses later in February as gold prices fell. During mid-July, additional losses were recorded from long gold futures positions as gold prices fell after the Bank of England announced the results of its gold auction, which had concluded at a lower price than most dealers expected. During October, additional losses were incurred from long positions in copper and aluminum futures as prices declined after concerns mounted that demand would weaken amid a cooling of the U.S. economy. 46 For the year ended December 31, 2000, Spectrum Technical recorded total trading revenues, including interest income, of $45,874,973. Total expenses for the year were $27,596,772, resulting in net income of $18,278,201. The net asset value of a unit increased from $14.91 at December 31, 1999 to $16.08 at December 31, 2000. 1999 RESULTS. Spectrum Technical recorded a net loss during 1999. The global interest rate futures markets experienced losses of approximately 6.96%, particularly from short-term price volatility in U.S. and European interest rate futures. Losses were recorded early in the first quarter from short Japanese government bond futures positions, as prices surged higher in response to the Bank of Japan's aggressive easing of monetary policy. Additional losses were experienced later in the first quarter from newly established long positions, as prices retreated following comments by Bank of Japan Governor Masaru Hayami that he expected interest rates in Japan to rise over time. During September, losses were recorded from short positions in Japanese government bond futures, as prices rallied on the strength of the Japanese yen and expectations that additional monetary easing in that country will come. In the metals markets, losses of approximately 5.36% were recorded particularly during the month of March from long silver futures positions, as prices declined during mid-month after Berkshire Hathaway's annual report failed to provide any new information on the company's silver positions. Losses were also experienced during October and November from long gold futures positions as gold prices reversed lower after previously climbing higher after Kuwait proposed to loan its gold, thereby easing supply tightness. Additional losses were recorded during October from long silver futures positions, as prices decreased following the decline in gold prices. Gains of approximately 9.06% recorded in the energy markets helped to mitigate losses. Long futures positions in crude oil and its refined products proved profitable as oil prices trended significantly higher largely attributed to the news that both OPEC and non-OPEC countries had reached and adhered to an agreement to cut total output. In the currency markets, gains were recorded during August, September, October and November from long Japanese yen positions, as the value of the yen increased versus the U.S. dollar due to positive economic data out of that country and optimism over Japan's economic recovery. For the year ended December 31, 1999, Spectrum Technical's total trading revenues, including interest income, were $9,446,385. Total expenses for the year were $30,186,548, resulting in a net loss of $20,740,163. The net asset value of a unit in Spectrum Technical decreased from $16.12 at December 31, 1998 to $14.91 at December 31, 1999. 1998 RESULTS. Spectrum Technical experienced a profitable year in 1998. The partnership recorded net gains during the year due primarily to long positions in global interest rate futures positions. The most significant gains, totaling approximately 19.35%, were experienced from long German, U.S. and Japanese bond futures positions during August and September, as investors flocked to "safe haven" investments amid the political and economic turmoil in Russia, Asia and Latin America. Short positions in crude oil futures also contributed profits of approximately 2.79%, as oil prices fell throughout a majority of the year on reports of a supply surplus, despite tensions in the Middle East. These gains were partially offset by losses experienced from short-term price volatility in the metals markets and the stock indices, resulting in losses of approximately 4.93% and 1.97%, respectively, as investors shifted investment capital from market to market amid global economic uncertainty. For the year ended December 31, 1998, Spectrum Technical's total trading revenues, including interest income, were $49,940,173. Total expenses for the year were $27,138,803, resulting in net income of $22,801,370. The net asset value of a unit in Spectrum Technical increased from $14.63 at December 31, 1997 to $16.12 at December 31, 1998. To enhance the foregoing comparison of operations from year to year, you should examine, line by line, the partnership's Statements of Operations and Statements of Financial Condition. See "Selected Financial Data" and "Independent Auditors' Report and Financial Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this prospectus. FINANCIAL INSTRUMENTS See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Financial Instruments" on page - , which discussion is equally applicable to Spectrum Technical. 47 MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. LIQUIDITY See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Liquidity" on page - , which discussion is equally applicable to Spectrum Strategic. CAPITAL RESOURCES See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Capital Resources" on page - , which discussion is equally applicable to Spectrum Strategic. RESULTS OF OPERATIONS GENERAL. The partnership's results depend on its trading advisors and the ability of each trading advisor's trading program to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the partnership's operations for the three years ended December 31, 2000, and a general discussion of its trading activities during each period. It is important to note, however, that the trading advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the trading advisors or will be profitable in the future. Consequently, the results of operations of the partnership are difficult to discuss other than in the context of its trading advisors' trading activities on behalf of the partnership as a whole and how the partnership has performed in the past. 2000 RESULTS. Spectrum Strategic recorded a net loss during 2000. The most significant losses of approximately 16.0% were recorded in the global stock index futures markets from short positions in U.S. stock index futures as domestic equity prices moved higher in early January on fears of an interest rate hike and reports of a major corporate merger. Additional losses were recorded during February from short positions in NASDAQ 100 Index futures as the NASDAQ Index climbed higher on strength in computer-chip and biotechnology companies. During the first half of September and November, additional losses were incurred from long positions in U.S. stock index futures as prices declined due to jitters in the technology sector and a worrisome spike in oil prices. In the metals markets, losses of approximately 14.6% were incurred primarily from long positions in aluminum and copper futures as prices moved lower in February and March due primarily to technically based selling, falling prices of other base metals, and the softening of oil prices. Additional losses were recorded during April, late-May, early-June, and October from long positions in aluminum and copper futures as prices declined after concerns mounted that demand would weaken amid a cooling of the U.S. economy. In soft commodities, losses of approximately 11.5% were experienced primarily during June, throughout a majority of the third quarter, and December from long positions in lumber futures as prices declined amid weak demand and abundant supplies. Additional losses were experienced during January, February, and early-April from long coffee futures positions as coffee prices declined in the wake of forecasts for a bumper crop in Brazil and on technically based selling. In the currency markets, losses of approximately 8.9% were recorded primarily during January, February, and July from long positions in the euro as the value of the European common currency weakened versus the U.S. dollar due to skepticism regarding Europe's economic outlook. During mid-September, additional losses were experienced from short positions in the euro as its value reversed sharply and suddenly higher versus the U.S. dollar after the world's major central banks carried out coordinated intervention to buy euros. Losses were also experienced during April from long positions in the Japanese yen as the value of the yen weakened versus the U.S. dollar amid fears of additional Bank of Japan intervention. During May and June, losses were recorded from short positions in the Japanese yen as the value of the U.S. dollar weakened versus the yen due primarily to the perception that interest rates in the U.S. may have topped out. A portion of the partnership's overall losses was partially offset by gains of approximately 18.9% recorded primarily during January in the energy markets from long futures positions in crude oil and its refined products as oil prices increased on growing speculation that OPEC would extend production cuts beyond the deadline of March 2000. Additional gains were recorded during March from short positions in crude oil futures as prices declined after OPEC effectively restored production levels to their year-earlier level. Additional gains were recorded early in May from long futures positions in crude oil as oil prices increased amid concerns over tight gasoline supplies and after comments from OPEC ministers who saw no need to raise supplies further. Profits were also recorded primarily during May from long positions in natural gas futures as prices continued their upward trend, as data released by 48 the American Gas Association further confirmed fears that inventory levels remain low. During August, November, and December, additional gains were recorded from long positions in natural gas futures as prices moved higher amid supply and storage concerns. For the year ended December 31, 2000, Spectrum Strategic recorded a total trading loss, net of interest income, of $26,938,961. Total expenses for the year were $9,948,329, resulting in a net loss of $36,887,290. The net asset value of a unit decreased from $15.85 at December 31, 1999 to $10.61 at December 31, 2000. 1999 RESULTS. Spectrum Strategic, whose managers use fundamental analyses in an attempt to forecast future price moves, produced performance results substantially different than the other Spectrum Series partnerships based on three primary themes: energy prices would rise from their low levels of January; gold would substantially increase in value late in the third quarter; and global stock indices would appreciate during the fourth quarter. Based on these themes, the managers in Spectrum Strategic emphasized exposure to long energy, gold and stock index futures positions appropriately throughout 1999. In the energy markets, significant gains of approximately 34.71% were recorded primarily from long futures positions in crude oil and its refined products, unleaded gas, heating oil, and gas oil, as prices climbed higher during March following an agreement reached by both OPEC and non-OPEC countries to cut total output beginning April 1st. Oil prices continued to move higher throughout the third quarter due to declining supplies, increasing demand, and evidence that output cuts were being adhered to. In the metals markets, gains of approximately 25.06% were recorded primarily from long positions in gold futures as gold prices soared during September following the Bank of England's second gold auction and an announcement by several European central banks stating that they were to restrict the sales of gold reserves for five years. Additional gains of approximately 1.06% were recorded from long copper futures positions, as copper prices soared during mid-April on a wave of fund buying and during June on news that a major U.S. producer would cut back production. Copper prices also moved higher during August and September resulting in profits for the partnership's long positions. Not all forecasts for Spectrum Strategic managers came to fruition last year. Losses of approximately 14.70% were recorded in the currency markets during January, primarily from long Japanese yen positions after an intervention by the Bank of Japan boosted the U.S. dollar against the yen and helped ease concerns about the impact of a strong yen on Japanese exports. Losses were also recorded during March from short Japanese yen positions, as the value of the yen increased versus the U.S. dollar amid new signs that Japan's economy may be on the mend. Losses were recorded from short Japanese yen positions during June and July, as its value reached a 5 1/2 month high versus the U.S. dollar due to inflationary pressures in the U.S. and optimistic prospects for economic growth in Japan. For the year ended December 31, 1999, Spectrum Strategic's total trading revenues, including interest income, were $39,555,618. Total expenses for the year were $11,426,548, resulting in net income of $28,129,070. The net asset value of a unit in Spectrum Strategic increased from $11.55 at December 31, 1998 to $15.85 at December 31, 1999. 1998 RESULTS. Spectrum Strategic posted a net gain in 1998. The partnership recorded profits of approximately 43.58% from long positions in global interest rate futures, as the increased volatility in the global financial markets and worldwide economic deterioration drove investors to a variety of "safe haven" investments throughout August and September. Long positions in U.S., German, British, and Japanese bond futures were the key contributors to these gains. Additional gains of approximately 1.16% were recorded in the currency markets in early October from long German mark positions, as the mark's value increased relative to the U.S. dollar. This weakness in the U.S. dollar was mainly caused by an unanticipated interest rate cut by the Federal Reserve and the continuing possibility, and subsequent reality, of presidential impeachment hearings. A portion of these gains was offset by losses of approximately 10.60% and 9.74%, respectively, in the energy and soft commodities markets, primarily during the fourth quarter from long positions in crude oil and cocoa futures. For the year ended December 31, 1998, Spectrum Strategic's total trading revenues, including interest income, were $13,096,775. Total expenses for the year were $8,081,680, resulting in net income of $5,015,095. The net asset value of a unit in Spectrum Strategic increased from $10.71 at December 31, 1997 to $11.55 at December 31, 1998. To enhance the foregoing comparison of operations from year to year, you should examine, line by line, the partnership's Statements of Operations and Statements of Financial Condition. See "Selected Financial Data" and "Independent Auditors" Report and Financial Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this prospectus. 49 FINANCIAL INSTRUMENTS See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Financial Instruments" on page - , which discussion is equally applicable to Spectrum Strategic. MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. LIQUIDITY See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Liquidity" on page - , which discussion is equally applicable to Spectrum Global Balanced. CAPITAL RESOURCES See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Capital Resources" on page - , which discussion is equally applicable to Spectrum Global Balanced. RESULTS OF OPERATIONS GENERAL. The partnership's results depend on its trading advisor and the ability of such trading advisor's trading program to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the partnership's operations for the three years ended December 31, 2000, and a general discussion of its trading activities during each period. It is important to note, however, that the trading advisor trades in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the trading advisor or will be profitable in the future. Consequently, the results of operations of the partnership are difficult to discuss other than in the context of its trading advisor's trading activities on behalf of the partnership as a whole and how the partnership has performed in the past. 2000 RESULTS. Spectrum Global Balanced recorded a net profit during 2000. The most significant gains of approximately 5.3% were recorded in the global interest rate futures markets primarily during March, August, November, and December from long positions in U.S. interest rate futures as prices climbed higher amid a drop in stock prices and as fears of an economic slowdown drew investors to the perceived safety of government securities. Additional gains were recorded during December from long positions in European and Australian interest rate futures as prices in these markets rose amid speculation that the U.S. Federal Reserve would lower interest rates in the near future following their decision to switch to an easing policy bias. In the energy markets, profits of approximately 2.3% were recorded primarily during May from long positions in natural gas futures as prices continued their upward trend, as data released by the American Gas Association further confirmed fears that inventory levels remain low. During December, additional gains were recorded from long positions in natural gas futures as prices moved higher amid supply and storage concerns. In the currency markets, gains of approximately 2.0% were recorded primarily during April, May, September, and October from short South African rand positions as its value weakened relative to the U.S. dollar due to instability in the Middle East and Zimbabwe and higher oil prices. A portion of the partnership's overall gains was partially offset by losses of approximately 7.6% recorded in the global stock index futures component during April, May, late-July, September, October, and December from long positions in Nikkei Index futures as Japanese equity prices declined due primarily to the weakness in global technology issues and economic uncertainty in Japan. Additional losses were recorded primarily during the second quarter, September, and November from long positions in FT-SE Index futures as most European stock indices sagged after the European Central Bank's aggressive interest rate hike in early June and during September and November on concerns about costly crude oil and a weak euro. For the year ended December 31, 2000, Spectrum Global Balanced recorded total trading revenues, including interest income, of $3,692,479. Total expenses for the year were $3,253,125, resulting in net income of $439,354. The net asset value of a unit increased from $16.12 at December 31, 1999 to $16.26 at December 31, 2000. 1999 RESULTS. Spectrum Global Balanced produced small gains during 1999. Gains of approximately 5.92% were recorded from long positions in the global stock index futures component, particularly long German stock index futures during the fourth quarter, due to the temporary strength of the U.S. equity market and in relief that the interest rate hikes by the European Central Bank and Bank of England were as expected. Additional gains of approximately 2.24% were recorded in the energy markets from long 50 positions in crude and gas oil futures as oil prices surged higher attributed to the news that both OPEC and non-OPEC countries had reached and adhered to an agreement to cut total output. Losses of approximately 5.04% were experienced in the fixed income component, primarily during February, April, and May from long U.S. interest rate futures positions, as prices dropped in reaction to Federal Reserve Chairman Alan Greenspan's warnings that a strong economy could reignite inflation. Fears that the Federal Reserve eventually could boost target interest rates pushed down domestic bond prices during the first and second quarters and forced yields higher. During July and August, long U.S. interest rate futures positions resulted in losses, as domestic bond prices moved temporarily lower after Federal Reserve Chairman Alan Greenspan commented that central bankers must consider stock prices when setting monetary policy and as economic reports added to concern that the U.S. Federal Reserve will raise interest rates. For the year ended December 31, 1999, Spectrum Global Balanced's total trading revenues, including interest income, were $3,654,263. Total expenses for the year were $3,251,953, resulting in net income of $402,310. The net asset value of a unit in Spectrum Global Balanced increased from $16.00 at December 31, 1998 to $16.12 at December 31, 1999. 1998 RESULTS. Spectrum Global Balanced experienced a profitable year in 1998. The partnership profited during the year primarily from long positions in the global stock index futures component of the balanced portfolio. The most significant gains were recorded from long S&P 500 Index futures positions, resulting in gains of approximately 12.08%, as equity prices reached record levels during the first half and final quarter of the year. Additional gains were recorded from long positions in European stock index futures, with a majority of the gains experienced during the fourth quarter amid the recovery of the U.S. stock markets. The global interest rate futures markets were also key contributors to overall gains, adding approximately 6.38%, as long global bond futures positions benefited from a "flight-to-quality," given the global economic uncertainty prevalent during the third quarter. For the year ended December 31, 1998, Spectrum Global Balanced's total trading revenues, including interest income, were $8,042,090. Total expenses for the year were $2,464,202, resulting in net income of $5,577,888. The net asset value of a unit in Spectrum Global Balanced increased from $13.75 at December 31, 1997 to $16.00 at December 31, 1998. To enhance the foregoing comparison of operations from year to year, you should examine, line by line, the partnership's Statements of Operations and Statements of Financial Condition. See "Selected Financial Data" and "Independent Auditors' Report and Financial Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this prospectus. FINANCIAL INSTRUMENTS See the discussion under "Morgan Stanley Dean Witter Spectrum Select L.P.--Financial Instruments" on page - , which discussion is equally applicable to Spectrum Global Balanced. MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. LIQUIDITY See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Liquidity" on page - , which discussion is equally applicable to Spectrum Currency. CAPITAL RESOURCES See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Capital Resources" on page - , which discussion is equally applicable to Spectrum Currency. RESULTS OF OPERATIONS GENERAL. The partnership's results depend on its trading advisors and the ability of such trading advisors' trading programs to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the partnership's operations for the period from July 3, 2000 (commencement of operations) to December 31, 2000, and a general discussion of its trading activities during each period. It is important to note, however, that the trading advisors trade in various markets at different times and that prior activity in a particular market does not 51 mean that such market will be actively traded by the trading advisor or will be profitable in the future. Consequently, the results of operations of the partnership are difficult to discuss other than in the context of its trading advisors' trading activities on behalf of the partnership as a whole and how the partnership has performed in the past. RESULTS OF OPERATIONS FOR THE PERIOD FROM JULY 3, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 2000. Spectrum Currency recorded a net profit during the period from July 3, 2000 (commencement of operations) through December 31, 2000. The most significant gains of approximately 7.6% were recorded primarily during August and October from short positions in the euro and Swiss franc as the value of these European currencies weakened relative to the U.S. dollar amid continued skepticism regarding the European economy. Additional gains were recorded during December from long positions in the euro and Swiss franc as their respective values reversed upward versus the U.S. dollar as a result of new confidence in the European economy and an overall skepticism regarding the U.S. economy. During December, profits of approximately 3.7% were recorded from short positions in the Japanese yen as the value of the yen declined versus most major currencies on further signs of weakness in the Japanese economy. Gains of approximately 2.8% were also recorded primarily during October and November from short South African rand positions as its value weakened versus the U.S. dollar, while moving in sympathy with other emerging market currencies. A portion of the partnership's overall gains was partially offset by losses of approximately 1.2% recorded primarily during October and November from long British pound positions as its value weakened versus the U.S. dollar on disappointing economic data out of the U.K. Additional losses were recorded during December from short positions in the British pound as its value strengthened versus the U.S. dollar on fresh evidence that the U.S. economy is cooling down. For the period from July 3, 2000 (commencement of operations) through December 31, 2000, Spectrum Currency recorded total trading revenues, including interest income, of $1,918,231. Total expenses for the period from July 3, 2000 (commencement of operations) through December 31, 2000 were $609,687, resulting in net income of $1,308,544. The net asset value of a unit increased from $10.00 at July 3, 2000 (commencement of operations) to $11.17 at December 31, 2000. To enhance the foregoing discussion of operations, you should examine, line by line, the partnership's Statement of Operations and Statement of Financial Condition. See "Selected Financial Data" and "Independent Auditors' Report and Financial Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this prospectus. FINANCIAL INSTRUMENTS See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Financial Instruments" on page - , which discussion is equally applicable to Spectrum Currency. MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. LIQUIDITY See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Liquidity" on page - , which discussion is equally applicable to Spectrum Commodity. CAPITAL RESOURCES See the discussion under "--Morgan Stanley Dean Witter Spectrum Select L.P.--Capital Resources" on page - , which discussion is equally applicable to Spectrum Commodity. RESULTS OF OPERATIONS GENERAL. The partnership's results depend on its trading advisor and the ability of its trading advisor's trading program to take advantage of price movements or other profit opportunities in the futures markets. The following presents a summary of the partnership's operations for the three years ended December 31, 2000 and a general discussion of its trading activities during each period. It is important to note, however, that the trading advisor trades in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the trading advisor or 52 will be profitable in the future. Consequently, the results of operations of the partnership are difficult to discuss other than in the context of its trading advisor's trading activities on behalf of the partnership as a whole and how the partnership has performed in the past. 2000 RESULTS. Spectrum Commodity recorded a net profit during 2000. The most significant gains of approximately 16.4% were recorded in the energy markets primarily during May from long positions in natural gas futures as prices trended higher, as data released by the American Gas Association further confirmed fears that inventory levels remain low. During August, November, and December, additional gains were recorded from long positions in natural gas futures as prices climbed to all time highs amid supply and storage concerns. Additional gains were recorded during January and February from long futures positions in crude oil and its refined products as oil prices increased on concerns about future output levels from the world's leading producer countries amid dwindling stockpiles and increasing demand. A portion of the Partnership's overall gains was partially offset by losses of approximately 5.6% recorded in the metals markets throughout a majority of the year from long silver futures positions as silver prices declined on technically-based factors. Additional losses were incurred from long aluminum and copper futures positions as prices moved lower during February and October due primarily to technically based selling. In soft commodities, losses of approximately 4.6% were experienced primarily during January and February from long coffee futures positions as coffee prices declined in the wake of forecasts for a bumper crop in Brazil. Additional losses were recorded throughout a majority of the second and fourth quarters from long coffee futures positions as prices decreased. For the year ended December 31, 2000 Spectrum Commodity recorded total trading revenues, including interest income, of $2,176,463. Total expenses for the year were $1,554,101, resulting in net income of $622,362. The net asset value of a unit increased from $7.61 at December 31, 1999 to $7.85 at December 31, 2000. 1999 RESULTS. During 1999, commodity market price behavior returned to the more normal pattern of some commodities gaining in price, while other commodities declined in price. Of the seventeen components of the Commodity Research Bureau, 10 increased in price during 1999, while the remaining seven declined in price. This was noticeably different from 1998, when all but one of the components of the Commodity Research Bureau declined in price. Energy markets, which had been the worst performing sector during 1998, rebounded strongly to become the best performing commodity sector in 1999, resulting in gains of approximately 13.35%. OPEC, which had suffered economically as their late 1997 decision to expand production coincided with the onset of economic difficulties in virtually all of the world's emerging economies, cooperated with other major global oil producing countries to rein in production and allow for the drawing down of inventories that had grown steadily throughout 1998. Crude oil, its refined products, and natural gas all benefited from the improving global demand for energy and the decreased supply of crude oil. Base metals markets also improved in price during 1999, resulting in gains of approximately 8.55%. Historically, copper has been referred to by some as "the world's economist", rising in price as economic activity improves and falling in price when economic difficulties are encountered. During both 1998 and 1999, copper served as an accurate barometer of global economic health. Additionally, copper producers' decisions to curtail production in the short-term helped support prices. Perhaps more importantly for the long-term, the consolidation of major mining companies in both copper and aluminum bodes well for less over-expansion during future periods of elevated prices, likely leading to "higher highs" and "higher lows" in future price cycles. Precious metals prices also improved modestly during 1999. After several years of lower gold prices, with central banks continuing to sell despite the lower prices, an announcement by a group of European central banks abruptly reversed the price slide and caught many short-sellers off guard. For 1999, gold was up in price by less than 1%, while silver and platinum, which have significant industrial demand, fared much better. Grain markets continued to suffer in price during 1999, resulting in a loss of approximately 5.37%. Despite an early summer scare caused by dry weather, overall conditions were favorable for another good harvest. As the year drew to a close, improved demand finally surfaced, perhaps signaling an end to multi-decade low prices. For the year ended December 31, 1999, Spectrum Commodity's total trading revenues, including interest income, were $5,045,724. Total expenses for the year were $1,669,935, resulting in net income of $3,375,789. The net asset value of a unit in Spectrum Commodity increased from $6.57 at December 31, 1998 to $7.61 at December 31, 1999. 1998 RESULTS. Spectrum Commodity recorded net losses during 1998. Spectrum Commodity adheres to a long-only approach to trading traditional commodity markets. This approach encountered significant 53 difficulty during the entire year, resulting in a total loss of 34.30%, given the magnitude and unrelenting nature of declines in a broad-based majority of commodities markets. The major factors impacting the commodity markets in 1998 were the emerging market economies, global economic instability, and unusual weather patterns. Demand for almost every commodity was negatively impacted by the downturn in virtually all of the world's emerging economies, as currency woes quickly spread worldwide. The ultimate contractions in demand for commodities (from affected economies) had a severe negative impact in the supply increases being provided by the world's producers, particularly within the energy and metals markets. For the year ended December 31, 1998, Spectrum Commodity's total trading loss, net of interest income, was $11,239,913. Spectrum Commodity's total expenses for the year were $2,303,718, resulting in a net loss of $13,543,631. The net asset value of a unit in Spectrum Commodity decreased from $10.00 at inception of trading on January 2, 1998 to $6.57 at December 31, 1998. 54 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTRODUCTION Each partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards, and options. The market sensitive instruments held by each partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of each partnership's assets are at risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is central, not incidental, to each partnership's main business activities. The futures, forwards, and options traded by each partnership involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities. Fluctuations in market risk based upon these factors result in frequent changes in the fair value of each partnership's open positions, and, consequently, in its earnings and cash flow. Each partnership's total market risk is influenced by a wide variety of factors, including the diversification among each partnership's open positions, the volatility present within the markets, and the liquidity of the markets. At different times, each of these factors may act to increase or decrease the market risk associated with a partnership. Each partnership's past performance is not necessarily indicative of its future results. Any attempt to numerically quantify a partnership's market risk is limited by the uncertainty of its speculative trading. A partnership's speculative trading may cause future losses and volatility (I.E. "risk of ruin") that far exceed the partnership's experiences to date or any reasonable expectations based upon historical changes in market value. QUANTIFYING EACH PARTNERSHIP'S TRADING VALUE AT RISK THE FOLLOWING QUANTITATIVE DISCLOSURES REGARDING EACH PARTNERSHIP'S MARKET RISK EXPOSURES CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SAFE HARBOR FROM CIVIL LIABILITY PROVIDED FOR SUCH STATEMENTS BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (SET FORTH IN SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934). ALL QUANTITATIVE DISCLOSURES IN THIS SECTION ARE DEEMED TO BE FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SAFE HARBOR, EXCEPT FOR STATEMENTS OF HISTORICAL FACT. Each partnership accounts for open positions using mark-to-market accounting principles. Any loss in the market value of a partnership's open positions is directly reflected in the partnership's earnings, whether realized or unrealized, and cash flow. Profits and losses on open positions of exchange-traded futures interests are settled daily through variation margin. Each partnership's risk exposure in the market sectors traded by the trading advisors is estimated below in terms of Value at Risk ("VaR"). The VaR model used by each partnership includes many variables that could change the market value of a partnership's trading portfolio. Each partnership estimates VaR using a model based upon historical simulation with a confidence level of 99%. Historical simulation involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model 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 and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors to which the portfolio is sensitive. The historical observation period of each partnership's VaR is approximately four years. The one-day 99% confidence level of each partnership's VaR corresponds to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in 100 trading days. VaR models, including the partnerships', are continuously evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either the general partner or the trading advisors in their daily risk management activities. 55 EACH PARTNERSHIP'S VALUE AT RISK IN DIFFERENT MARKET SECTORS The following tables indicate the VaR associated with each partnership's open positions, as a percentage of total net assets, by primary market risk category as of December 31, 2000 and 1999. SPECTRUM SELECT: As of December 31, 2000 and 1999, Spectrum Select's total capitalization was approximately $221 million and $214 million, respectively.
VAR MARKET CATEGORY 2000 1999 - --------------- -------- -------- % % Commodity................................................... (0.59) (0.40) Equity...................................................... (0.55) (0.48) Currency.................................................... (0.58) (0.37) Interest Rate............................................... (2.33) (0.27) Aggregate Value at Risk..................................... (2.65) (0.85)
SPECTRUM TECHNICAL: As of December 31, 2000 and 1999, Spectrum Technical's total capitalization was approximately $268 million and $269 million, respectively.
VAR MARKET CATEGORY 2000 1999 - --------------- -------- -------- % % Commodity................................................... (0.82) (0.70) Equity...................................................... (0.63) (0.85) Currency.................................................... (1.30) (1.00) Interest Rate............................................... (3.03) (0.72) Aggregate Value at Risk..................................... (3.42) (1.69)
SPECTRUM STRATEGIC: As of December 31, 2000 and 1999, Spectrum Strategic's total capitalization was approximately $74 million and $108 million, respectively.
VAR MARKET CATEGORY 2000 1999 - --------------- -------- -------- % % Commodity................................................... (1.53) (1.49) Equity...................................................... (0.90) (2.15) Currency.................................................... (0.67) (0.87) Interest Rate............................................... (1.41) (0.35) Aggregate Value at Risk..................................... (2.34) (2.97)
SPECTRUM GLOBAL BALANCED: As of December 31, 2000 and 1999, Spectrum Global Balanced's total capitalization was approximately $56 million and $58 million, respectively.
VAR MARKET CATEGORY 2000 1999 - --------------- -------- -------- % % Commodity................................................... (0.28) (0.22) Equity...................................................... (0.53) (0.38) Currency.................................................... (0.67) (0.22) Interest Rate............................................... (1.16) (0.20) Aggregate Value at Risk..................................... (1.62) (0.58)
56 SPECTRUM CURRENCY: As of December 31, 2000, Spectrum Currency's total capitalization was approximately $16 million.
VAR MARKET CATEGORY 2000 - --------------- ---- % Currency.................................................... (2.12 ) Aggregate Value at Risk..................................... (2.12 )
SPECTRUM COMMODITY: As of December 31, 2000 and 1999, Spectrum Commodity's total capitalization was approximately $20 million and $24 million, respectively.
VAR MARKET CATEGORY 2000 1999 - --------------- -------- -------- % % Commodity................................................... (1.64) (1.41) Aggregate Value at Risk..................................... (1.64) (1.41)
Aggregate Value at Risk, listed above for each partnership, represents the aggregate VaR of all of a partnership's open positions and not the sum of the VaR of the individual market categories. Aggregate VaR will be lower as it takes into account correlation among the different positions and categories. The tables above represent the VaR of each partnership's open positions at December 31, 2000 and 1999 only and are not necessarily representative of either the historic or future risk of an investment in these partnerships. Because the only business of each partnership is the speculative trading of futures, forwards, and options, the composition of a partnership's trading portfolio can change significantly over any given time period, or even within a single trading day. Any changes in open positions could positively or negatively materially impact market risk as measured by VaR. The tables below supplement the December 31, 2000 VaR (set forth above) by presenting each partnership's high, low, and average VaR, as a percentage of total net assets, for the four quarterly reporting periods from January 1, 2000 through December 31, 2000. SPECTRUM SELECT
MARKET CATEGORY HIGH LOW AVERAGE - --------------- -------- -------- -------- % % % Commodity............ (1.45) (0.59) (1.04) Equity............... (0.78) (0.22) (0.45) Currency............. (1.16) (0.36) (0.81) Interest Rate........ (2.33) (0.58) (1.24) Aggregate Value at Risk............... (2.65) (1.68) (2.06)
SPECTRUM TECHNICAL
MARKET CATEGORY HIGH LOW AVERAGE - --------------- -------- -------- -------- % % % Commodity............. (1.65) (0.82) (1.26) Equity................ (1.55) (0.47) (0.93) Currency.............. (1.80) (0.93) (1.40) Interest Rate......... (3.03) (1.00) (1.76) Aggregate Value at Risk................ (3.42) (2.25) (2.86)
SPECTRUM STRATEGIC
MARKET CATEGORY HIGH LOW AVERAGE - --------------- -------- -------- -------- % % % Commodity............ (2.18) (1.53) (1.86) Equity............... (0.90) (0.18) (0.58) Currency............. (0.95) (0.43) (0.74) Interest Rate........ (1.41) (0.25) (0.74) Aggregate Value at Risk............... (2.49) (1.97) (2.28)
SPECTRUM GLOBAL BALANCED
MARKET CATEGORY HIGH LOW AVERAGE - --------------- -------- -------- -------- % % % Commodity............. (0.39) (0.28) (0.32) Equity................ (1.28) (0.53) (0.86) Currency.............. (0.67) (0.38) (0.51) Interest Rate......... (1.16) (0.63) (0.84) Aggregate Value at Risk................ (1.67) (1.02) (1.43)
57 SPECTRUM CURRENCY
MARKET CATEGORY HIGH LOW AVERAGE - --------------- ---- --- ------- % % % Currency............. (2.85) (2.12) (2.49) Aggregate Value at Risk............... (2.85) (2.12) (2.49)
SPECTRUM COMMODITY
MARKET CATEGORY HIGH LOW AVERAGE - --------------- ---- --- ------- % % % Commodity............ (2.10) (1.64) (1.79) Aggregate Value at Risk............... (2.10) (1.64) (1.79)
LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK The face value of the market sector instruments held by each partnership is typically many times the applicable margin requirements. Margin requirements generally range between 2% and 15% of contract face value. Additionally, the use of leverage causes the face value of the market sector instruments held by each partnership to typically be many times the total capitalization of a partnership. The value of a partnership's open positions thus creates a "risk of ruin" not usually found in other investments. The relative size of the positions held may cause a partnership to incur losses greatly in excess of VaR within a short period of time, given the effects of the leverage employed and market volatility. The VaR tables above, as well as the past performance of the partnerships, give no indication of this "risk of ruin." In addition, VaR risk measures should be viewed in light of the methodology's limitations, which include the following: - past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements; - changes in portfolio value caused by market movements may differ from those of the VaR model; - 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 data used for VaR estimation may provide only limited insight into losses that could be incurred under unusual market movements. The VaR tables above present the results of each partnership's VaR for each partnership's market risk exposures and on an aggregate basis at December 31, 2000 and 1999 and for the end of the quarter periods from January 1, 2000 through December 31, 2000. Since VaR is based on historical data, VaR should not be viewed as predictive of a partnership's future financial performance or its ability to manage or monitor risk. There can be no assurance that a partnership's actual losses on a particular day will not exceed the VaR amounts indicated above or that losses will not occur more than once in 100 trading days. NON-TRADING RISK Each partnership has non-trading market risk on its foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial. Each partnership also maintains a substantial portion (approximately - ) of its available assets in cash at Dean Witter. A decline in short-term interest rates will result in a decline in a partnership's cash management income. This cash flow risk is not considered to be material. Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality, and multiplier features of a partnership's market sensitive instruments. QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES THE FOLLOWING QUALITATIVE DISCLOSURES REGARDING EACH PARTNERSHIP'S MARKET RISK EXPOSURES--EXCEPT FOR (A) THOSE DISCLOSURES THAT ARE STATEMENTS OF HISTORICAL FACT AND (B) THE DESCRIPTIONS OF HOW A PARTNERSHIP MANAGES ITS PRIMARY MARKET RISK EXPOSURES--CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT. EACH PARTNERSHIP'S PRIMARY MARKET RISK EXPOSURES AS WELL AS THE STRATEGIES USED AND TO BE USED BY THE GENERAL PARTNER AND THE TRADING ADVISORS FOR MANAGING SUCH EXPOSURES ARE SUBJECT TO NUMEROUS UNCERTAINTIES, CONTINGENCIES AND 58 RISKS, ANY ONE OF WHICH COULD CAUSE THE ACTUAL RESULTS OF EACH 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 EACH PARTNERSHIP. INVESTORS MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN A PARTNERSHIP. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. The following were the primary trading risk exposures of Spectrum Select as of December 31, 2000, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. INTEREST RATE. The primary market exposure of the Partnership is to the global interest rate complex. The partnership's exposure in the interest rate market complex was primarily spread across the U.S., European, Japanese, and Australian interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the partnership and indirectly affect 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 generally 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 and Spain. The general partner anticipates that G-7 and Australian interest rates will remain the primary interest rate exposure of the partnership for the foreseeable future. The changes in interest rates, which have the most effect on the partnership, are changes in long-term, as opposed to short-term, rates. Most of the speculative futures positions held by the partnership are in medium- to long-term instruments. Consequently, even a material change in short-term rates would have little effect on the partnership, were the medium- to long-term rates to remain steady. CURRENCY. The second largest market exposure this quarter is to the currency sector. The partnership's currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. Interest rate changes as well as political and general economic conditions influence these fluctuations. The partnership trades in a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. dollar. The partnership's major currency exposure was to Euro currency crosses and outright U.S. dollar positions. (Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies). The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based partnership in expressing VaR in a functional currency other than dollars. EQUITY. The 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, 2000, the partnership's primary exposures were to the DAX (German), S&P 500 (U.S.), and Nikkei (Japan) stock indices. The partnership is primarily exposed to the risk of adverse price trends or static markets in the 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 trading advisors will from time to time trade base metals such as aluminum, copper, zinc, nickel, tin, and lead, the principal market exposures of the partnership have consistently been to precious metals, such as gold and silver. Market exposure to precious metals was evident, as gold prices continued to be volatile during the quarter. Silver prices remained volatile over this period as well. The trading advisors' have from time to time taken positions as they have perceived market opportunities to develop. 59 ENERGY. On December 31, 2000, the partnership's energy exposure was shared primarily by futures contracts in the crude oil and natural gas markets. Price movements in these markets result from political developments in the Middle East, weather patterns, and other economic fundamentals. It is possible that volatility will remain high and that significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in this market. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. SOFT COMMODITIES AND AGRICULTURALS. On December 31, 2000, the partnership had exposure to the markets that comprise these sectors. Most of the exposure, however, was to corn, soybeans, soybean meal, coffee, and cotton markets. Supply and demand inequalities, severe weather disruption, and market expectations affect price movements in these markets. MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. The following were the primary trading risk exposures of Spectrum Technical as of December 31, 2000, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. INTEREST RATE. The primary market exposure of the partnership is to the global interest rate complex. Exposure was primarily spread across the German, European, U.S., and Japanese interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the partnership and indirectly affect 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 generally 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. The general partner anticipates that G-7 interest rates will remain the primary interest rate exposure of the partnership for the foreseeable future. The changes in interest rates, which have the most effect on the partnership, are changes in long-term, as opposed to short-term, rates. Most of the speculative futures positions held by the partnership are in medium- to long-term instruments. Consequently, even a material change in short-term rates would have little effect on the partnership, were the medium- to long-term rates to remain steady. CURRENCY. The second largest market exposure this quarter is to the currency sector. The partnership's currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. Interest rate changes as well as political and general economic conditions influence these fluctuations. The partnership trades in a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. dollar. The partnership's major currency exposure was to Euro currency crosses and outright U.S. dollar positions. (Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies). The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Partnership in expressing VaR in a functional currency other than dollars. EQUITY. The 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, 2000, the partnership's primary exposures were to the DAX (Germany), NASDAQ (U.S.), S&P 500 (U.S.), and FT-SE (Britain) stock indices. The partnership is primarily exposed to the risk of adverse price trends or static markets in the 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 ENERGY. On December 31, 2000, the partnership's energy exposure was shared primarily by futures contracts in the crude oil and natural gas markets. Price movements in these markets result from political developments in the Middle East, weather patterns, and other economic fundamentals. It is possible that volatility will remain high and that significant profits and losses, which have been experienced in the 60 past, are expected to continue to be experienced in this market. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. METALS. The partnership's primary metals market exposure is to fluctuations in the price of gold and silver. Although certain trading advisors will from time to time trade base metals such as aluminum, copper, nickel, tin, lead, and zinc, the principal market exposures of the partnership have consistently been to precious metals, such as gold and silver (and, to a much lesser extent, platinum). Market exposure to precious metals was evident, as gold prices continued to be volatile during the quarter. Silver prices remained volatile over this period as well. The trading advisors' have from time to time taken positions as they have perceived market opportunities to develop. SOFT COMMODITIES AND AGRICULTURALS. On December 31, 2000, the partnership had exposure to the markets that comprise these sectors. Most of the exposure, however, was to the corn, soybean and its related products, and sugar markets. Supply and demand inequalities, severe weather disruption, and market expectations affect price movements in these markets. MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. The following were the primary trading exposures of Spectrum Strategic as of December 31, 2000, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. INTEREST RATE. The partnership's exposure in the interest rate market complex was primarily spread across the U.S., European, and Japanese interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the partnership and indirectly affect 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 generally 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. The general partner anticipates that G-7 interest rates will remain the primary interest rate exposure of the partnership for the foreseeable future. The changes in interest rates, which have the most effect on the partnership, are changes in long-term, as opposed to short-term, rates. Most of the speculative futures positions held by the partnership are in medium- to long-term instruments. Consequently, even a material change in short-term rates would have little effect on the partnership, were the medium- to long-term rates to remain steady. EQUITY. The 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, 2000, the partnership's primary exposure was in the NASDAQ (U.S.), S&P 500 (U.S.), and DAX (Germany) stock indices. The partnership is primarily exposed to the risk of adverse price trends or static markets in the 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). 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. Interest rate changes as well as political and general economic conditions influence these fluctuations. The partnership trades in a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. dollar. The partnership's major exposures were to outright U.S. dollar positions. (Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies). The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based partnership in expressing VaR in a functional currency other than dollars. COMMODITY ENERGY. The primary market exposure of the partnership is to the energy sector. On December 31, 2000, the partnership's energy exposure was shared primarily by futures contracts in the crude oil and 61 natural gas markets. Price movements in these markets result from political developments in the Middle East, weather patterns, and other economic fundamentals. It is possible that volatility will remain high and that significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in this market. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. SOFT COMMODITIES AND AGRICULTURALS. On December 31, 2000, the partnership had exposure to the markets that comprise these sectors. Most of the exposure, however, was to the cotton, soybean and its related products, and lumber markets. Supply and demand inequalities, severe weather disruption, and market expectations affect price movements in these markets. METALS. The partnership's metals market exposure is primarily to fluctuations in the price of base metals. During periods of volatility, base metals will affect performance dramatically. Certain trading advisors will from time to time trade precious metals, such as gold. Market exposure to the gold market was evident, as gold prices continued to be volatile during the quarter. The general partner anticipates that the base metals will remain the primary metals market exposure of the partnership. MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. The following were the primary trading risk exposures of Spectrum Global Balanced as of December 31, 2000, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. INTEREST RATE. The primary market exposure of the partnership is to the global interest rate complex. Exposure was primarily spread across the U.S., German, British, and European interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the partnership and indirectly affect 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 generally 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. The general partner anticipates that G-7 and Australian interest rates will remain the primary interest rate exposure of the partnership for the foreseeable future. The changes in interest rates, which have the most effect on the partnership, are changes in long-term, as opposed to short-term, rates. Most of the speculative futures positions held by the partnership are in medium- to long-term instruments. Consequently, even a material change in short-term rates would have little effect on the partnership, were the medium- to long-term rates to remain steady. EQUITY. The second largest market exposure this quarter is in the global stock index complex. The 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, 2000, the partnership's primary exposures were to the S&P 500 (U.S.), FT-SE (Britain), and DAX (German) stock indices. The partnership is primarily exposed to the risk of adverse price trends or static markets in the 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). 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. Interest rate changes as well as political and general economic conditions influence these fluctuations. The partnership trades in a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. dollar. For the fourth quarter of 2000, the partnership's major exposures were to the Euro currency crosses and outright U.S. dollar positions. (Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies). The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based partnership in expressing VaR in a functional currency other than dollars. 62 COMMODITY ENERGY. On December 31, 2000, the partnership's energy exposure was shared primarily by futures contracts in the crude oil and natural gas markets. Price movements in these markets result from political developments in the Middle East, weather patterns, and other economic fundamentals. It is possible that volatility will remain high and that significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in this market. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. SOFT COMMODITIES AND AGRICULTURALS. On December 31, 2000, the partnership had exposure to the markets that comprise these sectors. Most of the exposure, however, was to the corn, cotton, and livestock markets. Supply and demand inequalities, severe weather disruption, and market expectations affect price movements in these markets. METALS. The partnership's metals market exposure is to fluctuations in the price of base metals. During periods of volatility, base metals will affect performance dramatically. The general partner anticipates that the base metals will remain the primary metals market exposure of the partnership. MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. The following was the primary trading risk exposure of Spectrum Currency as of December 31, 2000. It may be anticipated, however, that market exposure will vary materially over time. 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. Interest rate changes as well as political and general economic conditions influence these fluctuations. The Partnership trades in a large number of currencies. For the fourth quarter of 2000, the partnership's major exposures were to outright U.S. dollar positions. (Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies). The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar- based partnership in expressing VaR in a functional currency other than dollars. MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. The following were the primary trading risk exposures of Spectrum Commodity as of December 31, 2000, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. COMMODITY ENERGY. On December 31, 2000, the partnership's energy exposure was shared primarily by futures contracts in the crude oil and natural gas markets. Price movements in these markets result from political developments in the Middle East, weather patterns, and other economic fundamentals. It is possible that volatility will remain high and that significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in this market. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. SOFT COMMODITIES AND AGRICULTURAL. On December 31, 2000, the partnership had exposure to the markets that comprise these sectors. Most of the exposure, however, was to the corn, coffee, cocoa, and livestock markets. Supply and demand inequalities, severe weather disruption, and market expectations affect price movements in these markets. METALS. The partnership's primary metals market exposure is to fluctuations in the price of gold and silver. Although, the partnership will from time to time trade base metals such as copper, aluminum, zinc, and nickel, the principal market exposures of the partnership have consistently been to precious metals, such as gold and silver (and, to a much lesser extent, platinum). Market exposure to precious metals was 63 evident, as gold prices continued to be volatile during the quarter. Silver prices remained volatile over this period as well. The trading advisor has from time to time taken positions as it has perceived market opportunities to develop. QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE The following was the only non-trading risk exposure of each partnership at December 31, 2000: FOREIGN CURRENCY BALANCES. Each partnership's primary foreign currency balances were in:
SPECTRUM SELECT SPECTRUM TECHNICAL SPECTRUM STRATEGIC - ------------------------------- ------------------------------- ------------------------------- Australian dollars Australian dollars Australian dollars Euros British pounds Euros Japanese yen Euros Japanese yen
SPECTRUM GLOBAL BALANCED SPECTRUM CURRENCY SPECTRUM COMMODITY - ------------------------------- ------------------------------- ------------------------------- Australian dollars None None Euros South African rands
Each partnership controls the non-trading risk of these balances by regularly converting these balances back into U.S. dollars upon liquidation of the respective position. QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE Each partnership and the trading advisors, separately, attempt to manage the risk of a partnership's open positions in essentially the same manner in all market categories traded. The general partner attempts to manage each partnership's market exposure by seeking to have each partnership diversify its assets among different trading advisors in a multi-advisor partnership, each of whose strategies focus on different market sectors and trading approaches, and monitoring the performance of the trading advisors daily. In addition, the trading advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market sensitive instrument. The general partner monitors and controls the risk of each partnership's non-trading instrument, cash. Cash is the only partnership investment directed by the general partner, rather than the trading advisors. THE GENERAL PARTNER The general partner and commodity pool operator of each partnership is Demeter Management Corporation, a Delaware corporation formed on August 18, 1977 to act as a commodity pool operator. Effective in 1977, the general partner became registered with the CFTC as a commodity pool operator and is currently a member of the National Futures Association in such capacity. The general partner's main business office is located at Two World Trade Center, 62nd Floor, New York, New York 10048, telephone (212) 392-8899. The general partner is an affiliate of Dean Witter in that they are both wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co., which is a publicly-owned company subject to the reporting requirements of the Securities Exchange Act of 1934. Morgan Stanley Dean Witter & Co.'s SEC file number is 1-11758. The general partner is or has been the general partner and commodity pool operator for 35 commodity pools, including five other commodity pools which are exempt from certain disclosure requirements pursuant to CFTC Rule 4.7. As of December 31, 2000, the general partner had approximately $1.4 billion in aggregate net assets under management, making it one of the largest operators of commodity pools in the U.S. As of December 31, 2000, there were approximately 67,000 investors in the commodity pools managed by Demeter. The general partner is required to maintain its net worth at an amount equal to at least 10% of the total contributions to each limited partnership for which it acts as a general partner. Morgan Stanley Dean Witter & Co. has contributed to the general partner the capital necessary to permit the general partner to meet its net worth obligations as general partner of each partnership and intends to continue to do so. The general partner's minimum net worth requirements may be modified by the general partner at its option 64 without notice to or the consent of the limited partners, provided the modification does not adversely affect the partnership or the limited partners. The general partner and its principals are not obligated to purchase units but may do so. According to Morgan Stanley Dean Witter & Co.'s 2000 annual report, Morgan Stanley Dean Witter & Co. had total shareholders' equity of $19,271 million and total assets of $98,997 million as of November 30, 2000 (audited). Additional financial information regarding Morgan Stanley Dean Witter & Co. is included in the financial statements filed as part of that annual report. Morgan Stanley Dean Witter & Co. will provide to you, upon request, copies of its most recent Forms 10-K, 10-Q and 8-K, as filed from time to time with the SEC. These reports will be available from the SEC, in the same manner described under "The Spectrum Series--Availability of Exchange Act Reports" on page - , or will be available at no charge to you by writing to Morgan Stanley Dean Witter & Co. at 1585 Broadway, New York, New York 10036 (Attn: Investor Relations). Because of their relationship to the partnerships and each other, Morgan Stanley Dean Witter & Co., Dean Witter, and the general partner may have liability as a promoter or parent of the partnerships if any violations of the federal securities laws occur in connection with the offering of units. DIRECTORS AND OFFICERS OF THE GENERAL PARTNER Robert E. Murray, age 40, is Chairman of the Board, President and a Director of the general partner. Mr. Murray is also Chairman of the Board, President and a Director of Dean Witter Futures & Currency Management Inc. Mr. Murray is currently a Senior Vice President of Dean Witter. Mr. Murray began his career at Dean Witter 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 previously served as Vice Chairman and a Director of the Managed Funds Association, an industry association for investment professionals in futures, hedge funds and other alternative investments. Mr. Murray graduated from Geneseo State University in May 1983 with a B.A. degree in Finance. Mitchell M. Merin, age 47, is a Director of the general partner. Mr. Merin is also a Director of Dean Witter Futures & Currency Management Inc. Mr. Merin was appointed the Chief Operating Officer of asset management for Morgan Stanley Dean Witter & Co. 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 Dean Witter since 1990, during which time he has been Director of Dean Witter'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. Joseph G. Siniscalchi, age 55, is a Director of the general partner. Mr. Siniscalchi joined Dean Witter in July 1984 as a First Vice President, Director of General Accounting and served as Senior Vice President and Controller for Dean Witter's Securities Division through 1997. He is currently Executive Vice President and Director of the Operations Division of Dean Witter. From February 1980 to July 1984, Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc. Edward C. Oelsner III, age 59, is a Director of the general partner. Mr. Oelsner is currently an Executive Vice President and head of the Product Development Group at Morgan Stanley Dean Witter Advisors. Mr. Oelsner joined Dean Witter in 1981 as a Managing Director in Dean Witter's Investment Banking Department specializing in coverage of regulated industries and, subsequently, served as head of the Dean Witter Retail Products Group. Prior to joining Dean Witter, 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. Richard A. Beech, age 49, is a Director of the general partner. Mr. Beech has been associated with the futures industry for over 23 years. He has been at Dean Witter since August 1984, where he is presently Senior Vice President and head of Branch Futures. Mr. Beech began his career at the Chicago Mercantile Exchange, where he became the Chief Agricultural Economist doing market analysis, marketing and compliance. Prior to joining Dean Witter, Mr. Beech also had worked at two investment banking firms in operations, research, managed futures and sales management. 65 Raymond A. Harris, age 44, is a Director of the general partner. Mr. Harris is currently Executive Vice President, Planning and Administration for Morgan Stanley Dean Witter Asset Management and has worked at Dean Witter or its affiliates since July 1982, serving in both financial and administrative capacities. From August 1994 to January 1999, he worked in two separate Dean Witter 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. Anthony J. DeLuca, age 38, is a Director of the general partner. Mr. DeLuca is also a Director of Dean Witter Futures & Currency Management. Mr. DeLuca was appointed the Controller of Asset Management for Morgan Stanley Dean Witter in June, 1999. Prior to that, Mr. DeLuca was a partner at the accounting firm of Ernst & Young LLP, where he had Morgan Stanley Dean Witter as a major client. Mr. DeLuca had worked continuously at Ernst & Young LLP ever since 1984, after he graduated from Pace University with a B.B.A. degree in Accounting. Raymond E. Koch, age 44, is Chief Financial Officer of the general partner. Mr. Koch began his career at Morgan Stanley Dean Witter in 1988, has overseen the Managed Futures Accounting function since 1992, and is currently First Vice President, Director of Managed Futures and Realty Accounting. From November 1979 to June 1988, Mr. Koch held various positions at Thomson McKinnon Securities, Inc. culminating as Manager, Special Projects in the Capital Markets Division. From August 1977 to November 1979 he was an auditor, specializing in financial services at Deloitte Haskins and Sells. Mr. Koch received his B.B.A. in accounting from Iona College in 1977, an M.B.A. in finance from Pace University in 1984 and is a Certified Public Accountant. The general partner and its officers and directors may, from time to time, trade commodity interest contracts for their own proprietary accounts. The records of trading in such accounts will not be made available to you for inspection. As of the date of this prospectus, Robert E. Murray, Chairman of the Board, President and a Director of the general partner, owns 81.169 units of Spectrum Select, 132.538 units of Spectrum Technical, 209.644 units of Spectrum Commodity, and 180.995 units of Spectrum Currency, which amounts are less than 1% of the outstanding units of each partnership. As of the date of this prospectus, Mr. Murray did not beneficially own units of any other partnership, and none of the other directors or executive officers of the general partner beneficially owned units of any partnership. DESCRIPTION AND PERFORMANCE INFORMATION OF COMMODITY POOLS OPERATED BY THE GENERAL PARTNER The following table summarizes information relating to each of the other commodity pools operated by the general partner, except those commodity pools exempt from disclosure under CFTC Rule 4.7. While each of these commodity pools has essentially the same objective--appreciation of assets through speculative trading--the structure, including fees, interest income arrangements, and trading advisors, and the performance of these pools varies widely. There are significant differences between the partnerships and the commodity pools described below. For example, some of the commodity pools have principal protection features to protect investors against the loss of their investment principal, and none of these other commodity pools has the same mix of trading advisors, trading strategies, and fee structures as those employed by the partnerships. All summary performance information is current as of December 31, 2000. In reviewing the following summary performance information, you should understand that performance is calculated on an accrual basis in accordance with generally accepted accounting principles and is "net" of all fees and charges, and a more complete presentation of the performance of the futures funds operated or managed by the general partner and/or its affiliates is available without charge upon request to the general partner. Past performance is not necessarily indicative of future results and material differences exist between the commodity pools described in the chart and the partnerships. There is no assurance that the partnerships will perform in a manner comparable to any of the commodity pools described below. You should also note that interest income may constitute a significant portion of a commodity pool's total income and may generate profits where there have been realized or unrealized losses from futures, forwards, and options trading. 66 DEMETER MANAGEMENT CORPORATION CAPSULE SUMMARY OF PERFORMANCE INFORMATION REGARDING COMMODITY POOLS OPERATED (EXCEPT AS OTHERWISE INDICATED, BEGINNING JANUARY 1, 1996 THROUGH DECEMBER 31, 2000)
CURRENT CURRENT CUMULATIVE TOTAL NET ASSET RETURN START CLOSE AGGREGATE NET ASSET VALUE PER SINCE FUND TYPE/FUND(1) DATE(2) DATE(3) SUBSCRIPTION(4) VALUE(5) UNIT(6) INCEPTION(7) - ----------------- ------- ------- --------------- ----------- --------- ------------ $ $ $ % PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Dean Witter Commodity Partners Jan-81 Dec-88 9,648,397 739,757 488.29 (51.37) Columbia Futures Fund(11) Jul-83 N/A 29,276,299 8,504,237 3,163.59 222.82 DW Diversified Futures Fund L.P. Apr-88 N/A 206,815,107 86,745,966 1,175.17 365.95 DW Multi-Market Portfolio L.P.(12) Sep-88 N/A 252,526,000 8,336,668 1,338.12 33.81 DW Diversified Futures Fund II L.P. Jan-89 N/A 13,210,576 8,347,840 3,075.90 207.59 DW Diversified Futures Fund III L.P. Nov-90 N/A 126,815,755 48,335,974 1,945.81 94.58 DW Portfolio Strategy Fund L.P.(13) Feb-91 N/A 143,522,564 95,289,891 2,658.72 165.87 Morgan Stanley Dean Witter Charter DWFCM Mar-94 N/A 68,459,271 37,382,312 17.50 75.00 L.P.(14) Morgan Stanley Dean Witter Charter Graham L.P. Mar-99 N/A 27,332,830 28,771,158 12.55 25.50 Morgan Stanley Dean Witter Charter Mar-99 N/A 34,557,217 29,782,599 10.40 4.00 Millburn L.P. Morgan Stanley Dean Witter Charter Welton L.P. Mar-99 N/A 31,235,810 22,309,441 8.20 (18.00) PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" DW Cornerstone Fund I Jan-85 Dec-91 19,122,276 281,303 456.80 (53.15) DW Cornerstone Fund II(15) Jan-85 N/A 65,653,270 24,687,691 4,419.13 353.24 DW Cornerstone Fund III(15) Jan-85 N/A 137,132,762 28,391,065 3,037.53 211.54 DW Cornerstone Fund IV(15) May-87 N/A 168,114,264 99,618,555 5,373.69 451.15 Morgan Stanley Dean Witter Spectrum Select L.P. Aug-91 N/A 311,343,034 220,729,969 23.57 135.70 DW Global Perspective Portfolio L.P. Mar-92 N/A 67,424,535 11,661,054 1,005.36 0.54 DW World Currency Fund L.P. Apr-93 N/A 114,945,830 16,913,166 1,056.80 5.68 PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITH "PRINCIPAL PROTECTION" DW Principal Plus Fund L.P.(16) Feb-90 N/A 109,013,535 38,784,882 1,941.87 94.19 PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITH "PRINCIPAL PROTECTION" DW Principal Guaranteed Fund II L.P. Mar-89 Mar-96 162,203,303 4,966,449 1,056.55 5.66 PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Morgan Stanley Dean Witter/Chesapeake L.P. Nov-94 N/A 38,717,530 31,879,697 2,135.25 113.53 Morgan Stanley Dean Witter/JWH Futures Feb-96 N/A 33,770,611 13,176,730 1,192.14 19.21 Fund L.P. PRIVATELY-OFFERED FUND WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Morgan Stanley Dean Witter/Market Street Futures Oct-98 N/A 24,482,412 13,223,282 922.01 (7.80) Fund L.P. DWR Strategic Alternative Fund L.L.C. May-00 N/A 27,100,493 29,501,391 1,088.68 8.87 WORST WORST PEAK- MONTHLY % TO-VALLEY FUND TYPE/FUND(1) DRAWDOWN(8) DRAWDOWN(9) - ----------------- ----------- ----------- % % PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Dean Witter Commodity Partners (34.48) (64.23) 7/88 4/86-12/88 Columbia Futures Fund(11) (17.54) (48.63) 4/86 7/83-12/86 DW Diversified Futures Fund L.P. (12.85) (24.86) 5/90 5/95-6/96 DW Multi-Market Portfolio L.P.(12) (13.26) (29.84) 2/96 5/95-6/96 DW Diversified Futures Fund II L.P. (13.41) (25.62) 8/89 5/95-6/96 DW Diversified Futures Fund III L.P. (13.62) (27.00) 1/92 5/95-6/96 DW Portfolio Strategy Fund L.P.(13) (14.40) (31.83) 1/92 7/99-9/00 Morgan Stanley Dean Witter Charter DWFCM (12.87) (22.84) L.P.(14) 1/95 7/94-1/95 Morgan Stanley Dean Witter Charter Graham L.P. (8.00) (17.06) 3/99 2/00-7/00 Morgan Stanley Dean Witter Charter (12.69) (23.11) Millburn L.P. 10/99 7/99-7/00 Morgan Stanley Dean Witter Charter Welton L.P. (7.70) (29.10) 3/99 3/99-9/00 PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" DW Cornerstone Fund I (20.88) (64.47) 8/91 4/86-8/91 DW Cornerstone Fund II(15) (11.74) (32.70) 9/89 7/88-10/89 DW Cornerstone Fund III(15) (18.28) (32.35) 2/89 2/89-10/89 DW Cornerstone Fund IV(15) (21.04) (45.21) 9/89 7/89-9/89 Morgan Stanley Dean Witter Spectrum Select L.P. (13.72) (26.78) 1/92 6/95-8/96 DW Global Perspective Portfolio L.P. (12.10) (40.90) 10/99 8/93-1/95 DW World Currency Fund L.P. (9.68) (46.04) 5/95 8/93-1/95 PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITH "PRINCIPAL PROTECTION" DW Principal Plus Fund L.P.(16) (7.48) (13.08) 2/96 2/96-5/96 PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITH "PRINCIPAL PROTECTION" DW Principal Guaranteed Fund II L.P. (5.62) (14.69) 1/91 8/89-4/92 PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Morgan Stanley Dean Witter/Chesapeake L.P. (17.34) (33.68) 5/99 9/98-10/00 Morgan Stanley Dean Witter/JWH Futures (9.62) (46.68) Fund L.P. 10/99 7/99-9/00 PRIVATELY-OFFERED FUND WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Morgan Stanley Dean Witter/Market Street Futures (10.76) (31.12) Fund L.P. 3/00 3/99-7/00 DWR Strategic Alternative Fund L.L.C. (1.91) (2.18) 7/00 6/00-7/00 COMPOUND ANNUAL RATES OF RETURN(10) --------------------------------------------------------- FUND TYPE/FUND(1) 2000 1999 1998 1997 1996 - ----------------- ---------- ---------- ---------- --------- ---------- % % % % % PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Dean Witter Commodity Partners Columbia Futures Fund(11) 9.08 (8.54) 12.01 22.60 19.09 DW Diversified Futures Fund L.P. 22.00 (11.14) 6.22 11.96 (2.66) DW Multi-Market Portfolio L.P.(12) 21.64 (8.77) 5.63 13.28 (6.76) DW Diversified Futures Fund II L.P. 20.33 (9.50) 5.22 11.28 (4.83) DW Diversified Futures Fund III L.P. 21.99 (10.56) 5.39 12.29 (4.73) DW Portfolio Strategy Fund L.P.(13) 9.87 (6.85) 9.46 11.28 25.50 Morgan Stanley Dean Witter Charter DWFCM 23.77 (9.21) 5.07 26.22 3.97 L.P.(14) Morgan Stanley Dean Witter Charter Graham L.P. 21.96 2.90 (10 months) Morgan Stanley Dean Witter Charter 12.07 (7.20) Millburn L.P. (10 months) Morgan Stanley Dean Witter Charter Welton L.P. (8.17) (10.70) (10 months) PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" DW Cornerstone Fund I DW Cornerstone Fund II(15) 11.46 (5.42) 12.54 18.05 11.47 DW Cornerstone Fund III(15) (0.26) (6.78) 9.13 10.24 8.24 DW Cornerstone Fund IV(15) 14.74 (1.13) 6.80 38.41 12.97 Morgan Stanley Dean Witter Spectrum Select L.P. 7.14 (7.56) 14.15 6.22 5.27 DW Global Perspective Portfolio L.P. 3.63 (9.83) 11.25 11.16 9.26 DW World Currency Fund L.P. 6.36 2.65 (2.61) 39.35 12.97 PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITH "PRINCIPAL PROTECTION" DW Principal Plus Fund L.P.(16) 6.96 (3.82) 10.54 15.39 (5.28) PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITH "PRINCIPAL PROTECTION" DW Principal Guaranteed Fund II L.P. 1.00 (3 months) PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Morgan Stanley Dean Witter/Chesapeake L.P. 7.38 (3.48) 19.93 15.38 15.23 Morgan Stanley Dean Witter/JWH Futures 9.78 (22.29) 4.04 13.66 18.17 Fund L.P. (11 months) PRIVATELY-OFFERED FUND WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION" Morgan Stanley Dean Witter/Market Street Futures (5.55) (2.63) 0.26 Fund L.P. (3 months) DWR Strategic Alternative Fund L.L.C. 8.87 (8 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 67 FOOTNOTES TO DEMETER MANAGEMENT CORPORATION PERFORMANCE INFORMATION 1. "Publicly-offered" funds are pools offered to the public. "Privately-offered" funds are pools offered in private placements exempt from registration. Funds with "principal protection" are pools with an investment feature that guarantees the return of the amount originally invested, generally within 5 to 7 years. Funds without "principal protection" do not guarantee the return of an investor's investment. 2. "Start Date" is the month and year that the pool began trading. 3. "Close Date" is the month and year that the pool liquidated its assets and stopped doing business. 4. "Aggregate Subscriptions" is the aggregate of all amounts contributed to the pool, including investments that were later redeemed by investors. 5. "Current Total Net Asset Value" is the net asset value of the pool as of December 31, 2000, or, in the case of liquidated pools, the net asset value of the pool on the date of liquidation. 6. "Current Net Asset Value per Unit" is calculated by dividing the current total net asset value by the total number of units outstanding as of December 31, 2000, or, in the case of liquidated pools, the date of liquidation. 7. "Cumulative Return Since Inception" is the percentage change in the net asset value of a unit from its Start Date through December 31, 2000, or, in the case of liquidated pools, from its Start Date through the date of liquidation. 8. "Worst Monthly Drawdown" means losses experienced in the net asset value per unit over the specified period and is calculated by dividing the net change in the net asset value per unit by the beginning net asset value per unit for the relevant period. "Drawdown" is measured on the basis of monthly returns only, and does not reflect intra-month figures. The month in which the worst monthly drawdown occurred during the history of the pool is set forth under "Worst Monthly Drawdown." 9. "Worst Peak-to-Valley Drawdown" is the largest percentage decline in the net asset value per unit over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive ones. The months during which the worst peak-to-valley drawdown occurred are set forth under "Worst Peak-to-Valley Drawdown." 10. "Compound Annual Rates of Return" are calculated annually by multiplying on a compound basis each of the monthly rates of return during the year (not shown), and not by adding or averaging such monthly rates of return. For the year in which a pool commenced operations and for 2000, "Compound Annual Rates of Return" reflect the compounded monthly rates of return (not shown) from the Start Date for, or the beginning of, such partial year. 11. Columbia was a publicly-offered fund with more than one advisor from its inception in July 1983 through January 1988, at which point it became a publicly-offered fund with one advisor. 12. Multi-Market was a publicly-offered fund with more than one advisor with principal protection from its inception in September 1988 through September 30, 1993, at which point it was changed to a publicly-offered fund with one advisor without principal protection. 13. Portfolio Strategy was a publicly-offered fund with one advisor with principal protection from its inception in February 1991 through July 31, 1996, at which point it was changed to a publicly-offered fund with one advisor without principal protection. 14. Charter DWFCM's net asset value per unit was split 100-to-1 after the close of business on October 31, 2000. All investors in Charter DWFCM prior to October 31, 2000 had their units increased by a corresponding amount to reflect this revaluation and all return calculations in the table have been adjusted accordingly. 15. Subscriptions for interests in Cornerstone II, Cornerstone III, and Cornerstone IV included an up-front 7.625% of net asset value selling commission and continuing offering expense charge until sales to new investors were terminated on September 30, 1994. Because sales occurred throughout the year and, therefore, the amount of the net asset value-based charge varied among investors, it was not practicable to include the up-front charge in determining the Cornerstone Funds' annual return for 1994. 16. The performance record of Principal Plus includes the performance of Dean Witter Principal Plus Fund Management L.P., an affiliated pool. 68 THE TRADING ADVISORS MANAGEMENT AGREEMENTS Each trading advisor has entered into a management agreement with a partnership and the general partner. Each management agreement for Spectrum Select, except the management agreement with Northfield which will commence June 1, 2001 and expire May 31, 2004, will expire on May 1, 2001. Each management agreement for Spectrum Technical will expire on November 30, 2001. The management agreement for Spectrum Strategic with Allied Irish, Blenheim, and Eclipse will expire on December 31, 2002, November 30, 2001, and June 30, 2002, respectively. The management agreement for Spectrum Global Balanced will expire on November 30, 2001. Each management agreement for Spectrum Currency will expire on December 31, 2002. The management agreement for Spectrum Commodity will expire on December 31, 2001. Each of the foregoing management agreements will renew annually unless otherwise terminated by the general partner or the trading advisor. The trading advisor is responsible for directing the investment and reinvestment in futures, forwards, and options of the partnership's assets allocated to such trading advisor. Each management agreement will terminate if the partnership terminates, and may be terminated by the partnership at any month-end upon five days' prior written notice to the trading advisor. Each partnership may also terminate its management agreements immediately for events that the general partner believes would have an immediate adverse effect on the partnership, such as a violation of a partnership's trading policy. Each management agreement may also be terminated by the trading advisor for events that it deems would have a material adverse effect on its abilities to perform under the management agreement, such as the implementation of a new trading limitation not agreed to by the trading advisor. INTRODUCTION TO TRADING ADVISOR DESCRIPTIONS The biographies of the principals and brief summaries of the trading program(s) of the trading advisor(s) for each partnership are set forth below. The success of each partnership is dependent upon the collective success of its trading advisor(s) in their trading for the partnership. However, in evaluating these descriptions, an investor should be aware that the trading advisors' trading methods are proprietary and confidential, the trading advisor(s) selected for a partnership may change over time, and even if the same trading advisor(s) continue(s) to trade for a partnership, they may make substantial modifications to their trading programs. Investors generally will not be made aware of when a trading advisor makes a modification to its trading program. The descriptions of the trading advisors, their trading programs and their principals are general and are not intended to be exhaustive. It is not possible to provide a precise description of any trading advisor's trading program. Furthermore, the trading advisors may refer to specific aspects of their trading programs, which aspects may also be applicable to other trading advisors that did not choose to make specific reference to these aspects of their own trading programs. As a consequence, contrasts in the following descriptions may not, in fact, indicate a substantive difference between the different programs involved. However, all non-proprietary information about a trading program that the trading advisor believes to be material has been included. A trading advisor's registration with the CFTC or its membership in the National Futures Association should not be taken as an indication that any such agency has recommended or approved the trading advisor. Except as noted below, the trading advisors and their principals have no affiliation with any future commission merchant, introducing broker, or principal thereof, and do not and will not participate in brokerage commissions, directly or indirectly. Morgan Stanley Dean Witter Commodities Management is the only trading advisor affiliated with the general partner, Dean Witter, Morgan Stanley, and Morgan Stanley International, but does not directly participate in the brokerage commissions charged by Dean Witter. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. Currently three trading advisors trade the net assets for Spectrum Select. Commencing June 1, 2001 Northfield will be added as a fourth trading advisor. 69 1. EMC CAPITAL MANAGEMENT, INC. EMC is an Illinois corporation, registered with the CFTC as a commodity trading advisor and commodity pool operator. EMC was incorporated in January 1988 for the purpose of acting as a commodity trading advisor, and was registered with the CFTC as a commodity trading advisor in May of 1988 and as a commodity pool operator in February 1991. Ms. Elizabeth A. Cheval is EMC's Chairman, sole principal, sole director and beneficial owner. EMC and Ms. Cheval are also members of the National Futures Association. EMC's business address is 2201 Waukegan Road, Suite West 240, Bannockburn, Illinois 60015. PRINCIPAL Ms. Elizabeth A. Cheval is the Chairman, sole principal, and sole Director of EMC. In 1984, Ms. Cheval was selected with a select group of other individuals by Richard J. Dennis, Jr., a speculative investor in futures and options, to invest for his personal account. As his employee, Ms. Cheval received extensive training from Mr. Dennis, who personally supervised her investment activities. In 1986, she became self-employed and continued to invest for accounts of family members of Mr. Dennis until May of 1988 when Mr. Dennis elected to discontinue his trading program. Prior to working with Mr. Dennis, Ms. Cheval worked with A.G. Becker, a Chicago-based brokerage firm, on the floor of the Chicago Board of Trade. Ms. Cheval has invested in futures since 1983, when she began trading financial futures for her own account. Ms. Cheval received a B.A. in Mathematics from Lawrence University in 1978. At this time, neither EMC nor Ms. Cheval trades for its or her own account, but each reserves the right to do so in the future. If either EMC or Ms. Cheval engage in such trading, you will not be able to inspect such records. You should also be aware that EMC is currently the commodity pool operator and commodity trading advisor of the EMC Premier Fund, L.P., a commodity pool for which EMC acts as the general partner. Ms. Cheval is currently a limited partner in a commodity pool for which EMC is a trading advisor. THE EMC TRADING PROGRAMS EMC currently trades its Classic Program for Spectrum Select. In the near future, EMC may trade a portion of its allocated Spectrum Select assets pursuant to EMC's New Program. The exact nature of EMC's investment programs is proprietary and confidential. The following descriptions of the Classic Program and New Program are, by necessity, general and not exhaustive. EMC's investment strategies are technical rather than fundamental in nature. In other words, they are developed from analysis of patterns of actual monthly, weekly, and daily price movements and are not based on analysis of fundamental supply and demand factors, general economic factors or anticipated world events. EMC relies on historical analysis of these price patterns to interpret current market behavior and to evaluate technical indicators for trade initiations and liquidations. EMC's investment strategies used in each program are trend-following. This means that initiation and liquidation of positions in a particular market are generally in the direction of the price trend in that market, although at times counter-trend elements also may be employed. In both programs EMC employs an investment strategy which utilizes a blend of systems (or, stated another way, a number of systems simultaneously). The strategies are diversified in that each program follows a number of futures interests and often invests in more than ten different interests at one time. The specific types of contracts to be traded through both programs will vary over time. These may include futures contracts, options on futures contracts, and cash commodities. Examples of futures, forwards, and options traded by EMC include precious and base metals, U.S. and foreign financial instruments, stock indices, foreign currencies, grains and grain products, energy products such as crude oil, and soft commodities such as cocoa, orange juice, sugar, and coffee. EMC may invest in other futures interests in the future. EMC also may trade in currency forward contracts on the foreign exchange markets and engage in transactions in physical commodities, commonly known as an "exchange for physical" or "EFP." 70 As of December 31, 2000, EMC managed approximately $40.9 million of client assets pursuant to its Classic Program and approximately $44.3 million in all of its programs. These figures include notional funds. The futures interest contracts in both programs typically have been chosen for reasons which include their historical performance and for their customary liquidity. EMC may frequently invest, however, in less liquid markets. EMC generally commits approximately 15% to 35% of an account's equity as margin on open positions although this percentage can vary. EMC believes that the development of a futures investment strategy is a continual process. As a result of on-going research and development, EMC has made enhancements and modifications in the specifics of its trading method. It is likely that EMC will make similar enhancements and modifications in the future. This means that the methods that EMC may use in the future might differ from those presently used. Because EMC's methods are proprietary and confidential, the general partner may not be aware of such changes in EMC's investment methods. EMC's risk management largely will be dictated by the amount of EMC's allocated share of Spectrum Select's net assets. However, as profits are generated or losses are incurred, the risk management techniques that EMC employs for Spectrum Select will be modified. If possible within existing market conditions, EMC adheres to the requirements of a money management system which determines and limits the equity committed to each position and sets optimal stop-losses for each position and each account. The level of liquidation determined by this money management system can override liquidations determined by technical indicators, especially when an account has not generated profits or is experiencing losses. Under EMC's investment method, profits, if any, are generated by only a small percentage of the total number of trades placed. As a result, Spectrum Select's net assets allocated to EMC will experience times of substantial drawdowns. These drawdowns may be as high as 50% or more of the amount of funds initially allocated to EMC. In addition, EMC may experience drawdowns well in excess of 50% from peak levels of account performance. Substantial drawdowns do not, however, necessarily indicate a failure in the investment strategies, but rather are to be expected under the EMC programs. Prospective investors must, therefore, be prepared to withstand these periods of unprofitable trading. COMPARISON OF PROGRAMS As noted above, the Classic Program and the New Program share some common elements. Each program utilizes a diversified technical trend-following approach and invests in a number of global markets. Each program also utilizes a blend of systems and employs proprietary money management principles designed to control risk within the portfolio. The programs do, however, differ from one another in a number of significant respects. First, the blend of systems utilized in the Classic Program generally invests more aggressively than the blend utilized in the New Program. Second, the New Program may make use of countertrend elements more frequently than the Classic Program. Also of significance is the fact that the degree of leverage utilized in the Classic Program is typically higher than in the New Program. Finally, the specific money management principles employed also may differ. The Classic Program is designed to achieve a higher potential return and is likely to experience greater drawdowns and higher volatility over the long run. The New Program is likely to have a lower return, smaller drawdowns and lower volatility over the long run. Since past performance is not necessarily indicative of future results, there can be no assurance that the programs will perform in this manner either on a relative or absolute basis. 2. NORTHFIELD TRADING L.P. Northfield is a Delaware limited partnership with its principal place of business at 3609 S. Wadsworth, Suite 250, Denver, Colorado 80235-2110. Northfield began operations in August 1990. The limited partnership was formed to use emerging computer technology to develop systematic 71 approaches to trading. Northfield became registered in March 1990 as a commodity trading advisor and in November 1990 as a commodity pool operator with the CFTC, and is a member of the National Futures Association in such capacities. PRINCIPALS Douglas Bry is the President of Northfield. Mr. Bry has an extensive history, dating from 1972, in analyzing and understanding complex databases through the use of computerized statistical approaches. In January 1987, Mr. Bry and Philip Spertus formed Technical Trading Strategies, Inc., an Illinois corporation of which Mr. Bry is the President. In conjunction with Mr. Spertus and through Technical Trading Strategies, Mr. Bry developed and marketed the "Volatility Breakout System," a trading methodology that was offered for sale to the public. Technical Trading Strategies ceased offering to sell the Volatility Breakout System in March of 1990. Technical Trading Strategies obtained registration as a CTA in June 1987 and withdrew its registration in October 1990. Technical Trading Strategies never directed or guided the trading of customer accounts. In December 1987, Douglas Bry and Philip Spertus formed Northfield, an Illinois corporation of which Mr. Bry is the President. Northfield Trading Company, which became registered as a futures commission merchant with the CFTC in April 1988, withdrew its registration in October 1990. Northfield's primary business was to provide brokerage services to customers by introducing their accounts to clearing firms on a commission basis. Northfield also provided discretionary trading advice to customers, and licensed proprietary trading software to introducing brokers and commodity trading advisors. Mr. Bry, an attorney, graduated from Beloit College in 1974 with a B.A. in Philosophy and Sociology and obtained his J.D. from the University of Colorado in 1978. From September 1978 until June 1982, he was a trial attorney with the Defender Association of Philadelphia, and from June 1982 through January 1987, he was a Senior Trial Deputy with the Colorado State Public Defender. Mr. Bry began trading futures for his own account in 1985 and became registered with the CFTC as a commodity trading advisor in 1986. In January, 1997, Mr. Bry was elected to the National Futures Association Board of Directors in the Commodity Trading Advisor category and currently serves on its Executive Committee. In September, 1999, Mr. Bry completed his second two-year term on the Board of Directors of the Managed Funds Association. During the four years that he was on the Managed Funds Association's Board, he was Chairperson of the Emerging Trader Council, during the last two years he served on the Executive Committee, and during the last year he was Vice Chairman of the Managed Funds Association. Philip Spertus is Vice President of Northfield. Mr. Spertus graduated from the Massachusetts Institute of Technology in 1956. From 1979 to 1992, Mr. Spertus served in various senior capacities, including the positions of Chairman and President, with Intercraft Industries, Inc., a multinational manufacturer of picture frames and related products. In 1992, Intercraft Industries was sold to Newell Corporation and Mr. Spertus assumed the position of Vice President with Newell until late 1993. Mr. Spertus owned a special seat and was a registered Broker/Dealer and member of the Chicago Board Options Exchange from August 1984 through February 1986. He has traded futures for his own account since 1983. DESCRIPTION OF TRADING PROGRAMS Northfield will only trade the Diversified Program for Spectrum Select. Trading for Spectrum Select will be at 1.5 times the leverage Northfield normally applies for the Diversified Program. THE DIVERSIFIED PROGRAM The Diversified Program was conceived, tested and refined by Douglas Bry and Philip Spertus. The approach is fully computerized and nondiscretionary. Money management principles are a critical element in the Diversified Program and have been carefully constructed and are rigorously applied to minimize risk exposure and to protect asset appreciation. Since the trading methods to be utilized by Northfield in the Diversified Program are proprietary and confidential, the discussion that follows is of a general nature and is not intended to be exhaustive. The Diversified Program embodies the following features: 1. EXCLUSIVE EMPHASIS ON TECHNICAL ANALYSIS. Northfield's Diversified Program is purely technical. A technical approach utilizes prices action itself as analyzed by charts, numerical indicators, pattern 72 recognition, or other techniques designed to provide information about market direction. Since sustained price moves offer the greatest opportunity for profit with the least amount of risk, Northfield has focused on studying the characteristics of "random" versus "non-random" market behavior. The resulting systems used in the Diversified Program are highly sensitive to changes in price direction and volatility, and are designed to detect non-random behavior before a trend is obvious. 2. TRADING LOGIC BASED ON EXTENSIVE MARKET SIMULATIONS. In order to validate the trading methodology, extensive testing is conducted on historical data in more than 50 markets worldwide. 3. SIMILAR TRADING ACROSS MARKETS. Northfield is very sensitive to the risk of "curve-fitting" results to particular markets or time periods, and, as a result, utilizes a similar approach in each market or group of markets that are traded with a particular system in the Diversified Program. The decision to subject markets to similar trading rules has led to the identification of techniques that work independent of the markets to which they are applied. 4. A COMPLETELY AUTOMATED AND NON-DISCRETIONARY APPROACH. Northfield implements its Diversified Program systems via proprietary software that generates and print orders, monitors the markets in real time and keeps track of position. The selection of trades is not subject to intervention by Northfield's principals. No override of the Diversified Program will take place absent extraordinary circumstances which Northfield believes threaten the customer's capital, such as an outbreak of war, a major natural disaster, or a threat to the integrity of an exchange clearing system. 5. ONGOING RESEARCH AND DEVELOPMENT. A full-time staff of computer programmers work with the principals of Northfield to refine existing systems and develop new ones for use in the Diversified Program. DESCRIPTION OF COMMODITIES TRADED Northfield's Diversified Program trades a diverse portfolio of commodity interests across over 50 markets. The highly diversified mix of markets includes interest rates, currencies, stock index futures, grains, meats, energy products, metals (both precious and base), and soft commodities such as coffee, cotton and cocoa. Market liquidity is a critical factor in the decision whether to participate in a new market; Northfield may enter new domestic and non-United States markets for the Diversified Program as contract liquidity develops. The selection of markets is totally within the discretion of Northfield which may add or delete markets as it deems appropriate. The markets traded and position sizes in each market are a function of the trading methodology developed by Northfield. Multiple time frames are tracked in each market and, at any time and depending on market factors as assessed by Northfield, an account using the Diversified Program may be holding positions in all markets traded by the Diversified Program, some markets, or be out of all markets entirely. MONEY MANAGEMENT PRINCIPLES While volatility and leverage can produce healthy gains, they can also lead to substantial losses. The development of trading methods and the selection of markets are components of a complete portfolio strategy that also includes money management. The money management principles discussed below have been designed to minimize the probability of an equity drawdown while leaving intact the profit potential associated with investing in commodity interests. 1. VOLATILITY DETERMINED, RISK EQUATED AMONG MARKETS. Each market traded by the Diversified Program is monitored to determine its dollar volatility, that is, how many contracts can be traded in a given market without risking more than a set percentage (usually less than 1/2 of 1%) of an account's equity. In this way, the trading exposure is equalized across all markets. Therefore, risk is similar in all markets although the number of contracts traded in each market may vary considerably. 2. USE OF STOPS. Northfield generally uses protective stops for the Diversified Program, that is, setting the point at which to enter or exit the market in order to protect gains or minimize losses. Furthermore, in an attempt to control slippage, that is, the difference between the desired entry price and the actual execution price, Northfield may impose a limit on the fill prices it is willing to accept when entering trades. As a consequence, the size of a position may be smaller than desired. 73 3. THE DEGREE OF LEVERAGE USED. Managers frequently provide the margin-to-equity ratio as a measure of the risk associated with a particular trading program. For Northfield's Diversified Program, the margin-to-equity ratio, which is estimated to be usually less than 15% is far less meaningful than a measure of the funds that would be lost if all the open trades were exited at their prospective stops (the "Aggregate Risk to Stop"). While no assurance can be given that actual drawdowns will not exceed the Aggregate Risk to Stop, it provides a useful measure of exposure to loss. The Aggregate Risk to Stop percentage typically will not exceed 20% and generally ranges between 5% and 15% of an account. 4. DIVERSIFICATION Northfield further attempts to control risk exposure of a Diversified Program account through broad diversification. Over 50 markets worldwide are included in the portfolio research, although the number of markets traded within the portfolio at any one time may vary. While some markets and groups of markets have performance characteristics that are correlated, portfolio theory, experience and numerous simulations have established that portfolio diversification produces more consistent returns. 5. ACCOUNT ACTIVITY. Northfield's short-term Diversified Program systems may trade as frequently as once a day or more often, while long-term systems may take positions just a few times a year. The trading methods, selection of markets, money management principles, and implementation techniques described herein are general factors upon which Northfield will base its investment decisions for the Diversified Program. No assurance is given that consideration of any of these factors will lessen the risk of loss or increase the potential for profit. Northfield will continue to test and refine its trading methods for the Diversified Program and, therefore, reserves the right to change any technique or strategy, including the technical trading factors used, the commodity interests traded, or the money management principles applied for the Diversified Program. Northfield does not consider changes to the markets traded or systems being traded to be material for the Diversified Program and expects to make such changes on an ongoing basis. PAST PERFORMANCE OF NORTHFIELD The past performance information for the program traded by Northfield for Spectrum Select is set forth below. Northfield trades the net assets of Spectrum Select allocated to it pursuant to its Diversified Program at 1.5 times the leverage normally employed by that program. Capsule A-1 is a pro forma of an account from Capsule A, adjusted for the increased leverage employed by Northfield for Spectrum Select, and also adjusted for the interest income, brokerage, management, and incentive fees applied to Spectrum Select. The footnotes following Capsule A are an integral part of the Capsule. You are cautioned that the performance information set forth in the following capsule performance summary is not indicative of, and may have no bearing on, any trading results which may be attained by Northfield or Spectrum Select in the future, since past performance is not a guarantee of future results and other trading advisors will be investing funds of Spectrum Select. In addition, Northfield trades the net assets allocated to it at 1.5 times the leverage it normally applies to the Diversified Program, which will significantly increase volatility as well as profits and losses. The general partner cannot assure you that Northfield or the partnership will make any profit or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and may generate profits where there have been realized or unrealized losses from futures interests trading. 74 CAPSULE A NORTHFIELD TRADING L.P. DIVERSIFIED PROGRAM Name of commodity trading advisor: Northfield Trading L.P. Name of program: Diversified Program Inception of trading by commodity trading advisor: July 1989 Inception of trading in program: July 1989 Number of open accounts: 27 Aggregate assets overall: $54,090,057 Aggregate assets in program: $54,090,057 Largest monthly drawdown past five years: (4.9)%--(January 1999) Largest monthly drawdown since inception: (11.6)%--(September 1992) Worst peak-to-valley drawdown past five years: (12.1)%--(18 months, February 1997-July 1998) Worst peak-to-valley drawdown since inception: (27.0)%--(14 months, December 1991-January 1993) 2000 annual return: 13.90% 1999 annual return: 13.50% 1998 annual return: 7.00% 1997 annual return: 2.50% 1996 annual return: 18.40% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FOOTNOTES TO NORTHFIELD CAPSULE A PERFORMANCE SUMMARY "Inception of trading by commodity trading advisor" is the date on which Northfield began trading client accounts. "Inception of trading in program" is the date on which Northfield began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Northfield pursuant to the program shown as of December 31, 2000. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Northfield as of December 31, 2000 and does not include notional equity. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2000 and does not include notional equity. "Largest monthly drawdown" is the largest loss experienced by a single account in the program in any calendar month during the most recent five calendar years and year-to-date expressed as a percentage of the total equity in the account and includes the month and year of such drawdown. "Worst peak-to-valley drawdown" is the largest calendar month to calendar month loss experienced by a single account in the program during the most recent five calendar years and year-to-date expressed as a percentage of total equity in the account and includes the months and years in which it occurred. For example, a worst peak-to-valley drawdown in an account of "(10)%-(1/96-8/96)" means that the peak-to-valley drawdown was 10% and lasted from January 1996 to August 1996. "Annual and year-to-date return" is computed on a compounded monthly basis assuming reinvestment of accrued profits. The rate of return is computed by reference to total equity in the program. These numbers represent the composite performance of all accounts in the program, not the performance of any specific account. 75 CAPSULE A-1 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. NORTHFIELD TRADING L.P. PRO FORMA OF AN ACCOUNT FROM CAPSULE A DIVERSIFIED PROGRAM Largest monthly drawdown past five years: (7.55)% - (January 1999) Largest monthly drawdown since inception: (17.03)% - (September 1992) Worst peak-to-valley drawdown past five years: (20.71)% - (17 months, March 1997 - July 1998) Worst peak-to-valley drawdown since inception: (36.61)% - (6 months, August 1992 - January 1993) 2000 annual return: 17.99% 1999 annual return: 18.71% 1998 annual return: 8.91% 1997 annual return: 1.66% 1996 annual return: 28.39% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FOOTNOTES TO NORTHFIELD CAPSULE A-1 PRO FORMA PERFORMANCE SUMMARY Capsule A-1 above reflects pro forma rates of return, which are the result of the general partner and Northfield making pro forma adjustments to the actual past performance record of a client account managed pursuant to the Diversified Program, the trading program employed for Spectrum Select by Northfield. The pro forma adjustments are an attempt to reflect the current brokerage, management, and incentive fees, and historical interest income, and the degree of leverage applied for the portion of Spectrum Select's net assets traded by Northfield, as opposed to the actual fees, expenses, and interest income, and leverage applicable to the account. Capsule A-1 must be read in conjunction with the description of Northfield and its trading program above. Furthermore, you must be aware that pro forma rates of return have inherent limitations: (A) pro forma adjustments are only an approximate means of modifying historical records to reflect aspects of the economic terms of a commodity pool, constitute no more than mathematical adjustments to actual performance numbers, and give no effect whatsoever to such factors as possible changes in trading approach that might have resulted from the different fee structure, interest income, leverage, and other factors applicable to Spectrum Select as compared to Northfield's actual trading; and (B) there are different means by which the pro forma adjustments could have been made. While the general partner believes that the information set forth in Capsule A-1 is relevant to evaluating an investment in Spectrum Select, no representation is or could be made that the capsule presents what the performance results of the portion of Spectrum Select's net assets traded by Northfield would have been in the past or are likely to be in the future. Past results are not a guarantee of future results. 3. RABAR MARKET RESEARCH, INC. Rabar is an Illinois corporation and is registered with the CFTC as a commodity trading advisor and a commodity pool operator. It is a member of the National Futures Association in such capacities. Rabar, originally named Rainbow Market Research, Inc. when it was incorporated in November 1986, adopted its present name in January 1989. It was registered as a commodity trading advisor and a commodity pool operator in June 1988. Rabar has managed accounts continuously since July 1988. The business address of Rabar is 10 Bank Street, Suite 830, White Plains, New York 10606-1933. PRINCIPALS Paul Rabar, President of Rabar, first traded commodity futures in 1980. He worked as an account executive at E.F. Hutton from 1981 to 1983 and then at Clayton Brokerage until 1984. In 1985, Mr. Rabar 76 was selected by Richard J. Dennis, Jr., a speculative trader of futures and options, to participate in Mr. Dennis' commodity futures trading program. Mr. Rabar participated in that program in 1985 and 1986, managing an account for Mr. Dennis, and in 1987 and 1988 managed an account for another speculative trader of futures and options. He traded his own account from May 1988 until January 1989, when he invested in a futures fund to which Rabar is one of the advisors. Mr. Rabar is a graduate of the New England Conservatory of Music. He did additional work--primarily in science and mathematics--at Harvard University, and in 1979 and 1980 was an assistant instructor of physics there. Jeffrey Izenman is the Executive Vice President of Rabar, having joined the firm in that capacity in November 1998. Prior to that, from September 1994 through October 1998, he was the President of EMC where he was responsible for business development, client relations and various administrative and operational aspects of the firm. Mr. Izenman is also the Chairman and a member of the Board of Directors of the Managed Funds Association and is also a member of the Business Conduct Committee of the National Futures Association. Prior to joining EMC, Mr. Izenman was a partner in the law firm of Katten Muchin & Zavis from October 1988 through August 1994, and an associate with that firm from September 1982 through September 1988. There he specialized in the representation of commodity trading advisors (including Rabar) and commodity pool operators, as well as securities investment advisers and hedge fund operators. Mr. Izenman received his JD degree from the University of Michigan Law School in May 1982 and a B.S. in Accountancy from the University of Illinois in May 1979. Rabar is the commodity pool operator and trading advisor to Rabar Futures Fund, L.P., a private commodity pool. Rabar is also the trading advisor to Rabar International Futures Fund, Ltd., a commodity pool organized in the Cayman Islands, which is not open to U.S. investors. It should be noted that Rabar and/or Mr. Rabar currently, and Rabar, Mr. Rabar, and Mr. Izenman may in the future, invest in commodity pools that are advised by Rabar. Any of these pools may be beneficially owned solely or primarily by Mr. Rabar. Rabar does not currently trade an account for itself, and Mr. Izenman does not currently trade an account for himself, but either may do so in the future. Mr. Rabar, however, currently trades a personal account. Such trading occurs only in markets which are considered too illiquid to trade on behalf of clients, although Mr. Rabar may trade in other markets in the future. Records of Rabar's, Mr. Rabar's, and Mr. Izenman's personal trading will not be open to inspection by you. THE RABAR TRADING PROGRAM Rabar's objective is to achieve appreciation of Spectrum Select's assets which it is allocated through speculative trading of futures interests, including but not limited to domestic and foreign futures contracts and options on futures contracts, forward contracts and spot contracts, and cash commodities. Rabar primarily trades futures contracts for its existing clients. The specific futures interests will be selected from time to time by Rabar on the basis discussed below. Examples of futures contracts now traded by Rabar include, but are not necessarily limited to, futures contracts on currencies, U.S. and non-U.S. financial instruments, precious and base metals, U.S. and non-U.S. stock indices, energy products, grains, and soft commodities. Rabar may also engage in exchange for physicals transactions. At times, Rabar may trade futures, forwards, and options for some clients which it does not trade for Spectrum Select. As of December 31, 2000 Rabar was managing approximately $176 million of client assets pursuant to its trading program (notional funds included). Rabar's trading strategies have been internally researched and developed. They are technical rather than fundamental in nature, I.E., they are developed from the research and analysis of patterns of monthly, weekly, and daily price movements, and of such indicators as volume and open interest. Rabar does, however, consider the effects of some key fundamental factors, especially for the purpose of controlling risk. Rabar's risk management techniques include diversification, I.E., Rabar commits equity to many markets and to a number of trading strategies. Also, the trading program at all times adheres to the requirements of a money management system which determines and limits the equity committed to each trade, each market, each commodity complex, and each account. Furthermore, the risk assumed and, consequently, the potential for profit experienced by a particular account at different times, and by different accounts at the same time, vary significantly according to market conditions, the size of a given 77 account, the percentage gained or lost in that account, and the perceived risk aversion of that account's owner. Consequently, you should not expect the same performance as any other account traded previously, simultaneously, or subsequently by Rabar or Mr. Rabar. Rabar's trading program also emphasizes current and ongoing research and analysis of market behavior in order to continue to develop strategies for profiting from the changing character of that behavior. Rabar believes that the development of a commodity trading strategy is a continual process. As a result of further analysis and research into the performance of Rabar's methods, changes have been made from time to time in the specific manner in which these trading methods evaluate price movements in various commodities. It is likely that similar revisions will be made in the future. As a result of such modifications, the future trading methods that may be used by Rabar might differ from those presently being used. The general partner may not be aware of such changes in Rabar's trading methods. The markets typically traded by Rabar have been chosen for their historical performance, and for their customary liquidity. However, from time to time Rabar may trade in newer or less liquid markets. There can be no assurance of liquidity. Rabar's methods are proprietary and confidential. The foregoing description is general and is not intended to be exhaustive. As stated, trading decisions require the exercise of judgment by Rabar. The decision not to trade certain commodities or not to make certain trades may result at times in missing price moves and hence profits of great magnitude, which other trading advisors who are willing to trade these commodities may be able to capture. There is no assurance that the performance of Rabar will result in profitable trading. You should anticipate substantial losses of the portion of Spectrum Select's assets allocated to Rabar over long periods of time since profits, if any, are usually generated by only a few trades. Even more substantial losses of profits may occur because all profits are subjected to ever-increasing risk by Rabar and because large portions of unrealized profits in particular are usually given back before Rabar determines that trend reversals against its positions have occurred. 4. SUNRISE CAPITAL MANAGEMENT, INC. Sunrise Capital Management is a California corporation with offices at 990 Highland Drive, Suite 303, Solana Beach, California 92075-2472. Sunrise Capital Management (formerly known as Sunrise Commodities, Inc.) was organized in 1983 and continues the business of Sunrise Commodities, a California sole proprietorship organized in 1982, and its predecessor firms. Sunrise Capital Management was registered in February 1983 as a commodity trading advisor and in April 1990 as a commodity pool operator with the CFTC and is a member of the National Futures Association in such capacities. In January 1995, Sunrise and Commodity Monitors, Inc. organized Sunrise Capital Partners, LLC, a California limited liability company. Sunrise Capital Partners is wholly-owned by Sunrise Capital Management and Commodity Monitors and was registered in February 1995 as a commodity trading advisor and commodity pool operator with the CFTC and is a member of the National Futures Association in such capacities. Commodity Monitors is a California corporation organized in October 1977, and is the successor to the partnership of Harris & Slaughter. Commodity Monitors was registered in November 1977 with the CFTC as a commodity trading advisor and is a member of the National Futures Association in such capacity. Sunrise Capital Partners and CMI are also located at the address of Sunrise Capital Management set forth above. Sunrise Capital Management and Sunrise Capital Partners currently operate five commodity pools. PRINCIPALS Mr. Martin P. Klitzner is President of Sunrise Capital Management and a Managing Director of Sunrise Capital Partners. In 1967 and 1968, Mr. Klitzner received a B.A. and an M.B.A, respectively, from the University of Michigan. He did post graduate work in economics at the University of California, Los Angeles, from 1968 to 1971. Mr. Klitzner joined Sunrise Capital Management in December 1982. Prior to joining Sunrise Capital Management, Mr. Klitzner was a planner in the public sector, a private businessman, and an investor. Mr. Richard C. Slaughter is a Managing Director of Sunrise Capital Partners and is responsible for research and trading systems development. In 1974, he received a B.S. in finance from San Diego State University. He has pursued graduate studies in finance at the State University and in systems management 78 at the University of Southern California. Mr. Slaughter has been a Professor of Finance, instructing M.B.A. candidates in securities analysis and portfolio management. Mr. Slaughter, a co-founder of Commodity Monitors in 1977, serves as its President. He was responsible, along with Dr. Forrest, for the development of Commodity Monitors' current trading systems. Mr. Slaughter began trading commodities on a full-time basis in 1975 for his own account and as a commodity trading advisor. Dr. Gary B. Davis is the Chairman of the Board of Sunrise Capital Management. In 1968 and 1970, Dr. Davis received a B.S. and Medical degree, respectively, from the University of Michigan. From 1980 to 1990, Dr. Davis served on the faculty of the University of California, San Diego as an Associate Professor of Radiology. Dr. Davis has studied and traded the commodity futures markets since 1979. Dr. Davis currently concentrates his efforts in research and trading systems development activities for Sunrise Capital Partners. Dr. John V. Forrest engages in research and trading systems development on behalf of Sunrise Capital Partners. In 1962, he received a B.A. from Notre Dame and in 1966 received a Medical Degree from the State University of New York--Downstate Medical Center. Dr. Forrest retired in September 1997 as a Professor of Radiology at the University of California, San Diego, where he has served on the faculty since 1976. Dr. Forrest joined Commodity Monitors in September 1991 and is a co-developer, with Mr. Slaughter, of Commodity Monitors' current trading systems. He was President and sole shareholder of Cresta Commodities, a commodity trading advisor, from September 1981 to August 1989. Dr. Forrest began trading the commodity markets in 1975. Mr. Martin M. Ehrlich is Vice President-Marketing of Sunrise Capital Partners. His academic background includes studies at the University of Cincinnati where he majored in business administration. Mr. Ehrlich joined Sunrise Capital Management in 1986 after having been a long-time investor with Sunrise Capital Management. Prior to assuming responsibilities for marketing and public relations for Sunrise Capital Management, Mr. Ehrlich was an independent businessman and investor. Ms. Marie Laufik is Vice President-Trading of Sunrise Capital Partners. Ms. Laufik is head trader and is responsible for supervising trading and back-office operations. In 1973, Ms. Laufik received a Master's degree in Economics from the University of Prague. Ms. Laufik worked for a Czechoslovakian import/ export company for nine years before immigrating to the United States. Mrs. Laufik was a commodity trader for Cresta Commodities from 1986 until she joined Sunrise Capital Management in August 1988. Elissa Davis is a principal of Sunrise Capital Management and Sunrise Capital Partners by virtue of her role as a Trustee of the Davis Family Trust. Mrs. Davis is not active in the management of either Sunrise Capital Management or Sunrise Capital Partners and has not been involved in any other business activities during the past five years. 79 The Davis Family Trust, dated October 12, 1989, is a director and the sole shareholder of Sunrise Capital Management; Gary B. Davis and his wife, Elissa Davis, are trustees and the sole beneficiaries of this Trust. Sunrise Capital Management, Sunrise Capital Partners, their principals and their affiliates intend to trade or to continue to trade commodity interests for their own accounts. You will not be permitted to inspect the personal trading records of Sunrise Capital Management, Sunrise Capital Partners, their principals, or their affiliates, or the written policies relating to such trading. DESCRIPTION OF TRADING PROGRAMS Sunrise Capital Management utilizes a long-term technical trend-following system on behalf of the partnership, trading a wide continuum of time windows. Most of these time frames are decidedly long-term by industry standards. Pro-active money management strategies are designed to protect open profits and to minimize exposure to non-directional markets. Sunrise Capital Management and Sunrise Capital Partners currently offer six programs for investment, all of which are traded in accordance with the trading methodologies described below. In providing commodity trading advice, Sunrise Capital Management trades the CIMCO Program for Spectrum Select. The CIMCO--Diversified Financial Program was designed by Sunrise Capital Management to participate exclusively in the highly liquid financial markets. This program trades the major currencies as outrights against the U.S. dollar and selectively against each other. Interest rate futures, both long and short term (including U.S. and foreign bonds, notes, and euro products), stock indices, (including S&P 500, DAX, IBEX 35, and Nikkei 225) precious and industrial metals (including aluminum, gold, silver, and copper), natural gas, and crude oil are also traded in this program. These commodity interests are traded on futures exchanges but may also be traded in the interbank or cash markets when appropriate. As of December 31, 2000 Sunrise Capital Management and Sunrise Capital Partners collectively managed approximately $96 million of client assets pursuant to the CIMCO Program and approximately $485 million of client assets in all of its programs (notional funds excluded). OTHER TRADING PROGRAMS The Currency Program is discussed under "Morgan Stanley Dean Witter Spectrum Currency L.P. - 2. Sunrise Capital Partners, LLC" on page - . The Diversified Program may follow approximately twenty-five different markets. These markets may include, but are not limited to, precious and industrial metals, grains, petroleum products, soft commodities, domestic and foreign interest rate futures, stock indices (including S&P 500), currencies and their crossrates. The Expanded Diversified Program gives clients further diversification than in the standard Diversified Program. Additional commodity interests may include, but are not limited to, industrial metals, minor currency markets, foreign interest rate futures, and stock indices (DAX, IBEX-35, and Nikkei 225). Given liquidity constraints in certain of these additional commodity markets, the trading advisor may restrict money under management for this program. The Short-Term Program follows major currencies which include, but are not limited to, Japanese yen, British pound, euro, and Swiss franc, highly liquid interest rate markets (U.S. Treasury bonds, Eurodollars, Euro government bonds, Japanese government bonds, Euro-BOBL, and LT gilt), precious and industrial metals markets (gold, copper, aluminum, and zinc), energy markets (crude oil, natural gas, heating oil, and unleaded gas), and equities (DAX, FT-SE, NASDAQ, and Nikkei 225). Presently the Currency Options Program only follows options with a duration of one week or more on Swiss francs, British pounds, euros, and Japanese yen. Ongoing research will determine additional markets to be traded in the future as part of this program as well as a Diversified Options Program. 80 TRADING METHODOLOGIES Relying on technical analysis, Sunrise Capital Management believes that future price movements in all markets may be more accurately anticipated by analyzing historical price movements within a quantitative framework rather than attempting to predict or forecast changes in price through fundamental economic analysis. The trading methodologies employed by Sunrise Capital Management are based on programs analyzing a large number of interrelated mathematical and statistical formulas and techniques which are quantitative, proprietary in nature and which have been either learned or developed by Dr. Davis, Dr. Forrest, and/or Mr. Slaughter. The profitability of the trading programs traded pursuant to technical analysis emphasizing mathematical and charting approaches will depend upon the occurrence in the future, as in the past, of major trends in some markets. In the absence of these trends and relationships, the trading programs are likely to be unprofitable. Sunrise Capital Management's long-term, trend-following program attempts to detect a trend, or lack of a trend, with respect to a particular futures, forward, or option by analyzing price movement and volatility over time. This program consists of multiple, independent, and parallel systems, each designed and tested to seek out and extract different market inefficiencies on different time horizons. These systems will generate a signal to sell a "short" contract or purchase a "long" contract based upon their identification of a price trend in the particular futures, forward, or option. If the systems do not detect a price trend, a "neutral" trading signal will be generated. While this neutral signal is designed to filter out high-risk "whipsaw" markets, it is successful on only a limited basis. Successful speculative futures interests trading employing trend-following techniques, such as Sunrise Capital Management's system, depends to a large degree upon not trading non-directional markets. Accordingly, to the extent that this neutral trading signal is not generated during a non-trending market, trading would likely be unsuccessful because an account would trade such markets. Long-term trend-following trading systems, such as those employed by Sunrise Capital Management, will seldom effect market entry or exit at the most favorable price in the particular market trend. Rather, this type of trading system seeks to close out losing positions quickly and to hold portions of profitable positions for as long as the trading system determines that the particular market trend continues to offer reasonable profit potential. The number of losing transactions may exceed substantially the number of profitable transactions. However, if the approach is successful, these losses should be more than offset by gains. In using this trading methodology, it is anticipated that Sunrise Capital Management will commit to margin between 5%-30% of assets managed. Margin requirements may from time to time exceed this range. While Sunrise Capital Management relies on mechanical technical trading systems in making investment decisions, the overall strategy does include the latitude to depart from this approach if market conditions are such that, in the opinion of Sunrise Capital Management, execution of trades recommended by the mechanical systems would be difficult or unusually risky. There may occur the rare instance in which Sunrise Capital Management will override the system to decrease market exposure. Any modification of trading instructions could adversely affect the profitability of an account. Among the possible consequences of such a modification would be (1) the entrance of a trade at a price significantly worse than a system's signal price, (2) the complete negation of a signal which subsequently would have produced a profitable trade, or (3) the premature termination of an existing trade. Sunrise Capital Management is not under any obligation to notify clients, the general partner, or you of this type of deviation from its mechanical systems, since it is an integral part of its overall trading method. A technical trading system consists of a series of fixed rules applied systematically. However, the system still requires Sunrise Capital Management to make subjective judgments. For example, the trading advisor must select the markets it will follow and futures interests it will actively trade, along with the contract months in which it will maintain positions. Sunrise Capital Management must also subjectively determine when to liquidate positions in a contract month which is about to expire and initiate a position in a more distant contract month. Sunrise Capital Management engages in ongoing research that may lead to significant modifications from time to time. Sunrise Capital Management will notify the general partner if modifications to its trading systems or portfolio structure are material. 81 Sunrise Capital Management believes that the development of a commodity trading strategy is a continual process. As a result of further analysis and research into the performance of Sunrise Capital Management's methods, changes have been made from time to time in the specific manner in which these trading methods evaluate price movements in various futures interests, and it is likely that similar revisions will be made in the future. As a result of such modifications, the trading methods that may be used by Sunrise Capital Management in the future might differ from those presently being used. Sunrise Capital Management has discretionary authority to make all trading decisions, including upgrading or downgrading the trading size of the net assets of Spectrum Select it manages to reflect additions, withdrawals, trading profits, and/or trading losses, without prior consultation or notice. In addition, Sunrise Capital Management may from time to time adjust the leverage applicable to the assets allocated to it; PROVIDED, HOWEVER, any such adjustments will be consistent with the leverage parameters described herein and in the overall investment objectives and trading policies of the account it manages for Spectrum Select. Such adjustments may be in respect of certain markets or in respect of the overall CIMCO investment portfolio. Factors which may affect the decision to adjust leverage include: inflows and outflows of capital, ongoing research, volatility of individual markets, risk considerations, and Sunrise Capital Management's subjective judgement and evaluation of general market conditions. Adjustments to leverage may result in greater profits or losses. No assurance can be given that any leverage adjustment will be to your financial advantage. MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. 1. CAMPBELL & COMPANY, INC. Campbell is a Maryland corporation organized in April 1978 as a successor to a partnership originally organized in January 1974. Campbell has been registered with the CFTC as a commodity trading advisor since May 1978 and is a member of the National Futures Association in such capacity. Campbell's principal place of business is located at 210 W. Pennsylvania Ave., Suite 770, Towson, MD 21204. PRINCIPALS Ms. Theresa D. Becks serves as the Chief Financial Officer, Treasurer, Secretary and a Director. Ms. Becks joined Campbell in June 1991. In addition to her role as Chief Financial Officer, Ms. Becks also oversees administration and compliance at Campbell. From December 1987 to June 1991, she was employed by Bank of Maryland Corp, a publicly held company. When she left she was Vice-President and Chief Financial Officer. Prior to that time, she worked with Ernst & Young. Ms. Becks is a C.P.A. and has a B.S. in Accounting from the University of Delaware. Ms. Becks is registered as an associated person of Campbell. Mr. Richard M. Bell serves as a Senior Vice-President--Trading. Mr. Bell began his employment with Campbell in May 1990. His duties include managing daily trade execution of the assets under Campbell's management. From September 1986 through May 1990 Mr. Bell was the managing general partner of several partnerships registered as broker-dealers involved in market making on the floor of the Philadelphia Stock Exchange and Philadelphia Board of Trade. From July 1975 through September 1986 Mr. Bell was a stockholder and Executive Vice-President of Tague Securities, Inc., a registered broker-dealer. Mr. Bell graduated from Lehigh University with a B.S. in Finance. Mr. Bell is registered as an associated person of Campbell. Mr. D. Keith Campbell has served as Chairman of the Board since it began operations and was President until January 1, 1994, and Chief Executive Officer until January 1, 1998. Mr. Campbell is the majority stockholder. From 1971 through June 1978 he was a registered representative of a futures commission merchant. Mr. Campbell has acted as a commodity trading advisor since January 1972 when, as general partner of Campbell Fund, a limited partnership engaged in commodity futures trading, he assumed sole responsibility for trading decisions made on behalf of Campbell Fund. Since then he has applied various technical trading systems to numerous discretionary commodity trading accounts over which Campbell has discretionary trading authority. Mr. Campbell is registered with the CFTC as a commodity pool operator and is a member of the National Futures Association in such capacity. He is also registered as an associated person of Campbell. 82 Mr. William C. Clarke, III joined Campbell in June 1977. He is an Executive Vice-President and a Director. Mr. Clarke holds a B.S. in Finance from Lehigh University where he graduated in 1973. Mr. Clarke currently oversees all aspects of research which involves the development of proprietary trading models and portfolio management methods. Mr. Clarke is registered as an associated person of Campbell. Mr. Bruce L. Cleland joined Campbell in January 1993. Mr. Cleland serves as President, Chief Executive Officer, and a Director. From May 1986 through December 1992 Mr. Cleland served in various principal roles with the following firms; President, Institutional Brokerage Corp., a floor broker; President, Institutional Advisory Corp., a commodity trading advisor and commodity pool operator; President, F&G Management, Inc., a commodity trading advisor; President, Hewlett Trading Corporation, a commodity pool operator. Prior to this, Mr. Cleland was employed by Rudolf Wolff Futures, Inc., a futures commission merchant, where he served as President until April 1986. Mr. Cleland graduated in 1969 from Victoria University in Wellington, New Zealand where he received a Bachelor of Commerce and Administration degree. Mr. Cleland is registered as an associated person of Campbell. Xiaohua Hu serves as a Vice President--Research. Mr. Hu has been employed by Campbell since 1994 in the Research Department, where he has a major role in the ongoing research and development of Campbell's trading systems. From 1992 to 1994, Mr. Hu was employed in Japan by Line System as a software engineer, where he participated in the research and development of computer software, including programs for production systems control and software development. Mr. Hu received his B.A. in Manufacturing Engineering from Changsha University of Technology in China in 1982. He went on to receive an M.A. and Ph.D. in Systems and Information Engineering from the Toyohashi University of Technology, in Japan, in 1987 and 1992 respectively. During his studies at Toyohashi, Mr. Hu was also a Visiting Researcher in Computer Science and Operations Research and published several research papers. Phil Lindner, serves as Vice President--Information Technology. Mr. Lindner has been employed by Campbell since October 1994, became the IT Director in March 1996, and Vice President in January 1998. Mr. Lindner oversees Campbell's computer and telecommunications systems, including a staff of programmers that program proprietary applications for Campbell's trading, fund administration, and accounting functions, and provide complete computer systems support to all Campbell employees. Prior to joining Campbell, Mr. Lindner worked as a programmer and manager for Amtote, a provider of race-track computer systems. Mr. James M. Little serves as Executive Vice-President/Marketing and as a Director. Mr. Little holds a B.S. in Economics and Psychology from Purdue University. Mr. Little joined Campbell in April 1990. From March 1989 through April 1990 Mr. Little was a registered representative of A.G. Edwards & Sons, Inc. Prior to that, from January 1984 through March 1989, he was the Chief Executive Officer of James Little & Associates, Inc., a registered commodity pool operator and registered broker-dealer. Mr. Little is the co-author of THE HANDBOOK OF FINANCIAL FUTURES, and is a frequent contributor to investment industry publications. Mr. Little is registered as an associated person of Campbell. V. Todd Miller serves as a Vice President--Research. Mr. Miller has been employed by Campbell since 1994 in the Research Department, where he has a major role in the ongoing research and development of Campbell's trading systems. From 1993 to 1994, Mr. Miller was an assistant professor in the department of Computer Information Science at the University of Florida, where he taught classes in object oriented programming, numerical analysis, and programming in C, C++ and LISP. Mr. Miller holds a variety of degrees from the University of Florida, beginning with an Associates degree in architecture. He followed that in 1986 with a B.A. in Business with a concentration in computer science. In 1988, he received his M.A. in Engineering with a concentration in artificial intelligence. He completed his education in 1993 with a Ph.D. in Engineering with a concentration in computer simulation. Albert Nigrin serves as a Vice President--Research. Mr. Nigrin has been employed by Campbell since 1995 in the Research Department, where he has a major role in the ongoing research and development of Campbell's trading systems. From 1991-1995, Mr. Nigrin was an assistant professor in the department of Computer Science and Information Systems at American University in Washington D.C., where he taught classes in artificial intelligence, computer programming and algorithms to both graduate and undergraduate students. While teaching, he also wrote and published NEURAL NETWORKS FOR PATTERN RECOGNITION. Mr. Nigrin received a B.A. in Electrical Engineering in 1984 from Drexel University. He then 83 proceeded directly to a Ph.D. program and received his degree in Computer Science in 1990 from Duke University, where his doctoral studies concentrated in the areas of artificial intelligence and neural networks. Markus Rutishauser serves as Vice President--Trading, and has been employed by Campbell since October 1993. Prior to joining Campbell, Mr. Rutishauser worked two years at Maryland National Bank in Baltimore as an Assistant Vice President in foreign exchange trading. Prior to that, Mr. Rutishauser was employed by Union Bank of Switzerland, spending four years in their Zurich office and another four years in their New York office, in the Foreign Exchange Department. Mr. Rutishauser graduated from the University of Fairfield with a degree in Finance. He subsequently completed his MBA at the University of Baltimore in January 1996. Mr. Rutishauser is registered as an associated person of Campbell. Mr. C. Douglas York has been employed by Campbell since November 1992. He is a Senior Vice President--Trading. His duties include managing daily trade execution for foreign exchange markets. From January 1991 through October 1992, Mr. York worked for Black & Decker as Global Foreign Exchange Manager. He holds a B.A. in Government from Franklin and Marshall College. Mr. York is an associated person of Campbell. Any principal of Campbell may trade futures interests for his or her own accounts. In addition, Campbell manages proprietary accounts for its deferred compensation plan and principals. Campbell has written procedures that govern proprietary trading by principals. Trading records for proprietary trading accounts are available for review by clients upon reasonable notice. Such trades may or may not be in accordance with the Campbell trading program described below. THE CAMPBELL TRADING PROGRAM Campbell trades the assets allocated to it by the partnership pursuant to its Financial, Metal & Energy Large Portfolio, which trades exclusively in futures, options and forward contracts, including foreign currencies, precious and base metals, energy products, stock market indices, and interest rate futures. As of December 31, 2000, Campbell was managing approximately $2.03 billion of client assets pursuant to the Financial Metals & Energy Large Portfolio and approximately $2.26 billion in all of its programs. Campbell makes trading decisions using proprietary technical trading models, which analyze market statistics. There can be no assurance that the trading models currently being used will produce results similar to those produced in the past. Campbell's trading models are designed to detect and exploit medium-term to long-term price changes, while also applying proven risk management and portfolio management principles. Campbell believes that utilizing multiple trading models for the same client account provides an important level of diversification, and is most beneficial when multiple contracts of each market are traded. More or fewer trading models than are currently used may be used in the future. Every trading model may not trade every market. It is possible that one trading model may establish a long position while another trading model establishes a short position in the same market. Since it is unlikely that both positions would prove profitable, in retrospect one or both trades will appear to have been unnecessary. It is Campbell's policy to follow trades signaled by each trading model independent of what the other models may be recommending. Over the course of a long-term trend, there are times when the risk of the market may not appear to be justified by the potential reward. In such circumstances some of Campbell's trading models may exit a winning position prior to the end of a price trend. While there is some risk to this method (for example, being out of the market during a significant portion of a price trend), our research indicates that this is well compensated for by the decreased volatility of performance which may result. Campbell's trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. Campbell expects to develop additional trading models and to modify models currently in use and may or may not employ all such models for all clients' accounts. The trading models currently used by Campbell may be eliminated from use if Campbell ever believes such action is warranted. 84 While Campbell normally follows a disciplined systematic approach to trading, on occasion it may override the signals generated by the trading models. Such action may not be beneficial to the results achieved. Campbell applies risk management and portfolio management strategies to measure and manage overall portfolio risk. These strategies include portfolio structure, risk balance, capital allocation, and risk limitation. One objective of risk and portfolio management is to determine periods of relatively high and low portfolio risk, and when such points are reached, Campbell may reduce or increase position size accordingly. It is possible, however, that during periods of reduction in position size the return that would have been realized had the account been fully invested would be reduced. Campbell may, from time to time, increase or decrease the total number of contracts held based on increases or decreases in an account's assets, changes in market conditions, perceived changes in portfolio-wide risk factors, or other factors which may be deemed relevant. Campbell estimates that, based on the amount of margin required to maintain positions in the markets currently traded, aggregate margin for all positions held in a client's account will range between 20% and 40% of the account's net assets. From time to time, margin commitments may be above or below these ranges. The number of contracts that Campbell believes can be bought or sold in a particular market without undue adverse price movement may at times be limited because of illiquidity. In such cases a client's portfolio would be influenced by liquidity factors because its positions in such markets might be substantially smaller than its positions in other markets which offer greater liquidity. 2. CHESAPEAKE CAPITAL CORPORATION Chesapeake was incorporated under the laws of the Commonwealth of Virginia in February 1988 for the purpose of offering advisory and investment portfolio management services to both retail and institutional investors in trading futures interest contracts. On August 19, 1991, Chesapeake was merged into Chesapeake Capital Corporation, an Illinois corporation formed on August 13, 1991. References herein to "Chesapeake" refer to the Virginia corporation prior to August 19, 1991 and the Illinois corporation on and after August 19, 1991. Chesapeake has been registered with the CFTC as a commodity trading advisor and as a commodity pool operator since June 20, 1988 and May 8, 1991, respectively, and has also been a member of the National Futures Association since June 20,1988. Chesapeake's principal place of business is located at 500 Forest Avenue, Richmond, Virginia 23229. All business records will be kept at Chesapeake's principal place of business. PRINCIPALS R. Jerry Parker, Jr. is the Chairman of the Board of Directors, the Chief Executive Officer, and a member of the Executive Committee of Chesapeake. Mr. Parker has overseen Chesapeake's operations and its trading since its inception. Mr. Parker received a Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in January 1980. Mr. Parker worked in the accounting field for four years after graduating from college and became a licensed Certified Public Accountant in Virginia in 1982. From November 1983 until January 1987, Mr. Parker was employed as an exempt commodity trading advisor by Mr. Richard J. Dennis, a principal and shareholder of Richard J. Dennis & Company, a Chicago-based commodity trading advisor and a commodity pool operator registered with the CFTC, in his "Turtle" training program. From January 1987 until February 1988, Mr. Parker traded for Mr. Thomas Dennis as an exempt commodity trading advisor. From November 1983 through February 1988, Mr. Parker had complete discretionary trading authority over a futures portfolio of U.S. $1 million to U.S. $1.5 million. In February 1988, Mr. Parker ceased trading for Mr. Thomas Dennis and formed Chesapeake, which, as of January 31, 2001, managed approximately U.S. $1.06 billion (notional funds included) of client funds. John M. Hoade is the President, the Secretary, and a member of the Executive Committee of Chesapeake. Mr. Hoade received a Bachelor of Science degree in Business Administration from Lynchburg College in 1978. From September 1976 through December 1990, Mr. Hoade was employed by Thurston Metals, Inc., located in Lynchburg, Virginia, in sales, marketing, and general management. Mr. Hoade joined Chesapeake in December 1990 to direct its operations and marketing efforts. 85 Braxton Glasgow, III is the Executive Vice President, Director of Marketing, and a member of the Executive Committee of Chesapeake. Mr. Glasgow received a Bachelor of Science degree in Accounting from the University of North Carolina--Chapel Hill in 1975 and is a Certified Public Accountant. Prior to joining Chesapeake in May 1995, where he is responsible for Marketing, Sales, and New Product Development, Mr. Glasgow was President of Shoe Factory, Inc. in Richmond, Virginia from January 1992 through May 1995, Executive Vice President of Intershoe, Inc. in Millersburg, Pennsylvania from November 1989 through January 1992, and Managing Director of Signet Investment Banking Company in Richmond, Virginia from September 1986 through November 1989, where he specialized in merger and acquisition taxation. Robert S. Parker, Jr. is the General Counsel and a member of the Executive Committee of Chesapeake. Mr. Parker received his Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in 1965. Mr. Parker worked in the accounting field for two years and became a Certified Public Accountant in Virginia. He then attended law school at the College of William and Mary where he received a Juris Doctor degree in 1970. Mr. Parker has been engaged in the practice of law since then, with an emphasis in tax and business matters, including 13 years with Hunton & Williams, where Mr. Parker was a partner. Mr. Parker has been General Counsel of Chesapeake since February 1996. Chesapeake and its principals may, from time to time, trade futures, forwards, and options contracts and securities for their own proprietary accounts. Such trades may or may not be in accordance with the Chesapeake trading program described below. Records for these accounts will not be made available to Spectrum Technical. THE CHESAPEAKE TRADING PROGRAMS Prior to June 1, 1998, the assets allocated to Chesapeake by Spectrum Technical were traded pursuant to its Diversified Program and its Financial and Metals Program. Since June 1, 1998, the assets of Spectrum Technical allocated to Chesapeake have been traded pursuant to its Diversified 2XL Program. The Diversified 2XL Program emphasizes a wide range of diversification with a global portfolio of futures interests contracts, including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. Chesapeake will not trade cash commodities or swap contracts for the partnership without the general partner's consent. Chesapeake may trade on U.S. and non-U.S. exchanges and markets. The decision to add or subtract markets from this program periodically shall be at the sole discretion of Chesapeake. Chesapeake utilizes a variety of trading strategies and programs for its clients' private accounts and for Chesapeake-sponsored investment funds. The programs offered generally by Chesapeake to its clients to trade futures interest contracts for their private accounts (i.e., to those clients other than Chesapeake-sponsored investment funds) are the Diversified Program and the Diversified 2XL Program (the "Diversified Trading Programs"). The Diversified Program commenced trading in February 1988. The Diversified Program emphasizes a wide range of diversification by utilizing a global portfolio of futures interest contracts including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. These futures interest contracts are traded on a highly leveraged basis. The Diversified 2XL Program, which Chesapeake trades for Spectrum Technical, began trading in April 1994. The Diversified 2XL Program employs the same trading system as the Diversified Program, except that the Diversified 2XL Program is generally traded on an increased exposure basis generally equal to approximately two times the exposure or trading level typically applied to a fully-funded Diversified Program account (although at times a different level may be used and the partnership's returns may vary significantly from a 2:1 ratio with the gross returns of private accounts trading the Diversified Program). Ultimately, the appropriate exposure or trading level to be employed by the partnership in its trading, as determined at the sole discretion of Chesapeake, will be determined by the performance factors associated with the partnership and the partnership only, regardless of the intended performance relationship of the partnership to other accounts trading in other programs that may utilize more or less exposure. Since Chesapeake's trading strategies and programs are proprietary and confidential, the discussion below is of a general nature and it is not intended to be exhaustive. 86 As of December 31, 2000, Chesapeake was managing approximately $119 million of customer funds in the Diversified 2XL Program (notional funds excluded) and approximately $1.01 billion of client assets (notional funds excluded). In general, Chesapeake analyzes markets, including price action, market volatility, open interest, and volume as a means of predicting market opportunity and discovering any repeating patterns in past historical prices. Chesapeake generally employs a computerized analysis of a large number of interrelated statistical and mathematical formulas and techniques--based on an extensive proprietary and confidential database of prices, volume, open interest, and various other market statistics--to search for patterns in data and to develop, use, and monitor trading strategies. Chesapeake places primary emphasis on technical analysis in assessing market opportunities. Chesapeake's trading decisions are based on a combination of its systems, its market timing techniques, its trading discretion, judgment, and experience and on market opportunities. Chesapeake's trading methodology is both systematic and strategic. Trading decisions require the exercise of strategic judgment by Chesapeake in evaluating its technical trading methods, in their possible modification from time to time, and in their implementation. Chesapeake is free to use its discretion whether to follow any trading signals or parameters generated by its technical trading strategies and its Diversified Trading Programs. The decision not to trade certain markets or not to make certain trades indicated by Chesapeake's systems can materially affect performance. Under no circumstances is Chesapeake compelled to follow any of the trading indications generated by the Diversified Trading Programs. Chesapeake has the right to employ any form or method of technical analysis that it deems appropriate in trading its Diversified Trading Programs. By way of example, the technical trading strategies and programs utilized by Chesapeake may be significantly revised from time to time by Chesapeake as a result of ongoing research and development, which seeks to devise new trading strategies and programs, as well as test its current technical strategies and programs. Chesapeake will not notify clients, such as the partnership, of such revisions or changes to its Diversified Trading Programs as they may occur. Exchanges on which transactions may take place will include, but are not limited to, all exchanges in the United States, as well as non-U.S. exchanges which include, but are not limited to, the Belgian Futures and Options Exchange, the London International Financial Futures and Options Exchange Ltd., the International Petroleum Exchange of London Ltd., the London Metal Exchange, the London Commodity Exchange, the Italian Derivatives Market, the Marche a Terme International de France, the Mercado Espanol de Futuros Financieros, the Eurex Deutschland, the Hong Kong Futures Exchange Ltd., the Montreal Exchange, the Tokyo Commodity Exchange, the Tokyo International Financial Futures Exchange, the Tokyo Stock Exchange, the Singapore International Monetary Exchange, the Sydney Futures Exchange Ltd., and the Winnipeg Commodity Exchange. In addition, Chesapeake continually monitors numerous markets, both U.S. and non-U.S., and initiates trades at any point it determines that a market is sufficiently liquid and tradable using the methods employed by Chesapeake. Chesapeake renders advice regarding transactions in physical commodities, including exchange of futures for physicals transactions. An exchange of futures for physicals transaction is a transaction permitted under the rules of many futures exchanges in which two parties exchange a cash market position for a futures market position (or vice versa) without making an open, competitive trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. Chesapeake does not currently, but may in the future, utilize swaps on behalf of the partnership with the general partner's consent. A swap transaction is an individually negotiated, non-standardized agreement between two parties to exchange cash flows (and sometimes principal amounts) measured by different interest rates, exchange rates, indices, or prices, with payments generally calculated by reference to a principal amount or quantity. Chesapeake may enter into swap transactions involving or relating to interest rates, currencies, commodities or indices. Swaps may be utilized for a number of reasons, including to achieve greater exposure to markets in which Chesapeake is constrained by speculative 87 position limits from taking additional positions in exchange-traded contracts, to access markets not accessible through exchange-traded instruments, and to allow customization of positions. Chesapeake may also trade other types of over-the-counter derivative contracts. Chesapeake generally uses between 10% and 30% of the equity in a fully funded account as original margin for trading in the Diversified Program, but at times the margin-to-equity ratio can be higher. The low margin normally required in futures trading permit an extremely high degree of leverage; margin requirements for futures trading being in some cases as little as 2% of the face value (or "exposure") of the contracts traded. Therefore, the gross value of positions held in an account may be several times the value of such account. Consequently, even a slight movement in the prices of open positions in an account could result in immediate and substantial losses to the investor. The Diversified 2XL Program generally trades at approximately double the Diversified Program exposure requiring the use of double of the portion of equity Chesapeake generally uses as margin, which results in approximately double the ratio of the gross value of positions in relation to the value of an account. The risk assumed and, consequently, the potential for profit experienced by a particular account at different times, and by different accounts at the same time, vary significantly according to the program(s) traded, the market conditions, the percentage gained or lost in such account, the size of such account, the brokerage commissions, the management fees and the incentive fees charged to such account, the contracts, if any, excluded from such account by the client, and when such account commenced trading. Accordingly, no investor should expect to achieve the same performance as that of any other account traded previously, simultaneously, or subsequently by Chesapeake. Programs that exclude or emphasize certain markets often perform differently than programs utilizing different markets. On programs that differ in terms of leverage or exposure only (E.G., the Diversified Trading Programs), Chesapeake generally attempts to manage accounts in such programs such that the gross returns (before fees), positive or negative, are a multiple of each other based on the leverage differential (e.g., the Diversified 2XL Program gross returns, positive or negative, are generally intended to be approximately double those of the Diversified Program on an annual or year to date basis). However, many factors can, sometimes significantly, impact account performance and these performance relationships, including but not limited to, differences in the timing of additions and withdrawals and the resulting adjustment trades, varying fills, changes in position size to reduce risk during losing periods by Chesapeake that impact an account in one program but not other account(s) in other programs that use proportionately higher or lower exposure, differences in brokerage commissions, and other factors. Accordingly, every program will underperform or overperform the anticipated multiple or fraction of a differently leveraged program. ADDITIONS AND REDEMPTIONS IN POOL ACCOUNT Investors in investment fund accounts generally make additions or redeem units at net asset value per unit as of the opening of business on the first business day of each month. In order to provide the appropriate market exposure commensurate with a fund's equity after giving effect to net additions/ redemptions, Chesapeake's general practice is to adjust positions as soon as possible after the close of business on the last trading date of the month. Market conditions may dictate the time period over which these trades can be effected. The performance of a fund account relative to the performance of other accounts trading in the same program or to accounts trading within programs that should perform at a level proportionately higher or lower than such account may be significantly different as a result of these adjustment trades. Furthermore, there may be changes in net asset value per unit as a result of such adjustments trades. Based on the level of net additions/redemptions and Chesapeake's determination of liquidity or other market conditions, Chesapeake may also decide to make adjusting trades before the close of business on the last business day of the month. No assurance is given that Chesapeake will be able to avoid the performance discrepancies and the changes described above in connection with pool equity level changes. The use of discretion by Chesapeake in the application of this procedure may affect performance positively or negatively. Further, effecting trades prior to the close of business on the last business day of the month may cause brokerage commissions to be incurred and allocated in the month prior to the month in which the investors making additions participate in pool profits and losses. 88 3. JOHN W. HENRY & COMPANY, INC. (JWH-REGISTERED TRADEMARK-) John W. Henry & Company began managing assets in 1981 as a sole proprietorship and was later incorporated in the state of California as John W. Henry & Co., Inc. to conduct business as a commodity trading advisor. In 1997, JWH reincorporated in the state of Florida. JWH's offices are at 301 Yamato Road, Suite 2200, Boca Raton, Florida. JWH's registration as a commodity trading advisor became effective in November 1980. JWH is a member of the National Futures Association in this capacity. "JWH" is the registered trademark of John W. Henry & Company, Inc. The John W. Henry Trust, dated July 27, 1990, is the sole shareholder of JWH. PRINCIPALS Mr. John W. Henry is chairman of the JWH Board of Directors and is trustee and sole beneficiary of the John W. Henry Trust dated July 27, 1990. He is also a member of the JWH Investment Policy Committee. In addition, he is a principal of Westport Capital Management Corporation, Global Capital Management Limited, and JWH Financial Products, Inc., all affiliates of JWH. Mr. Henry currently concentrates his activities at JWH on portfolio management, research and new system development, day-to-day decisions involving the strategic direction and business of the firm and frequent dialogue with trading supervisors. He is the exclusive owner of trading systems licensed to Elysian Licensing Corporation, a corporation wholly owned by Mr. Henry, and sublicensed by Elysian Licensing Corporation to JWH and utilized by JWH in managing investor accounts. Mr. Henry has served on the Board of Directors of the Futures Industry Association, the National Association of Futures Trading Advisors, and the Managed Futures Trade Association, and has served on the Nominating Committee of the National Futures Association. He has also served on a panel created by the Chicago Mercantile Exchange and the Chicago Board of Trade to study cooperative efforts related to electronic trading, common clearing, and issues regarding a potential merger. Since the beginning of 1987, he has devoted, and will continue to devote, considerable time to activities in businesses other than JWH and its affiliates, including acting as chairman of the Florida Marlins Baseball Club LLC, which continues to be operated by professional baseball staff. Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a member of the JWH Board of Directors. His duties include the coordination and allocation of responsibilities among JWH and its affiliates. He is also vice chairman and a director of JWH Financial Products, Inc. Prior to joining JWH in January 1994, he was a partner at Chapman and Cutler in Chicago, where he headed the law firm's futures law practice from August 1983 to December 1993. He also served as general counsel of the MFA and general counsel of the National Association of Futures Trading Advisors. Mr. Mitchell is currently a member of the National Futures Association commodity pool operator/commodity trading advisor Advisory Committee. In addition, he has served as a member of the National Futures Association Special Committee for the Review of a Multi-tiered Regulatory Approach to National Futures Association Rules, the MFA Government Relations Committee, and the Executive Committee of the Futures Industry Association Law and Compliance Division. In 1985, Mr. Mitchell received the Richard P. Donchian Award for Outstanding Contributions to the Field of Commodity Money Management. He received an A.B. with honors from Dartmouth College and a J.D. from the University of California at Los Angeles, where he was named to the Order of the Coif, the national legal honorary society. Mr. Verne O. Sedlacek is the president and chief operating officer and a member of the JWH Investment Policy Committee. He is responsible for the day-to-day management of the firm. Mr. Sedlacek is also a principal of Westport Capital Management Corporation, JWH Investment Management Inc., Global Capital Management Limited, and JWH Financial Products, Inc. Prior to joining JWH in July 1998, he was the executive vice president and chief financial officer of Harvard Management Company, Inc., a wholly owned subsidiary of Harvard University which, at the time of his departure, managed approximately $14 billion of University-related funds. At Harvard Management Company, he was responsible for managing the areas of personnel, budgets, systems, performance analysis, contracts, credit, compliance, custody, operations, cash management, securities lending and market risk evaluation; he joined Harvard Management in March 1983. Mr. Sedlacek currently serves on the Boards of Directors of the National Futures Association, the Futures Industry Association, Commonfund Capital, Inc., and the Chicago Mercantile Exchange, and is a member of the Global Markets Advisory Committee of the CFTC. He is also a member of the National 89 Futures Association/Futures Industry Institute Best Practices Study End User Expert Panel. He received an A.B. in Economics from Princeton University, and an M.B.A. in Accounting from New York University and was certified as a C.P.A. by the State of New York in 1978. Dr. Mark S. Rzepczynski is a senior vice president, research and trading and a member of the JWH Investment Policy Committee. He is also a principal of JWH Financial Products, Inc. Prior to joining JWH in May 1998, he was vice president and director of taxable credit and quantitative research in the fixed income division of Fidelity Management and Research from May 1995 to April 1998, where he oversaw credit and quantitative research recommendations for all Fidelity taxable fixed income funds. From April 1993 to April 1995, he was a portfolio manager and director of research for CSI Asset Management, Inc., a fixed-income money management subsidiary of Prudential Insurance. Dr. Rzepczynski has a B.A. CUM LAUDE, Honors in Economics from Loyola University of Chicago, and an A.M. and Ph.D. in Economics from Brown University. Mr. E. Lyndon Tefft is a senior vice president and the chief financial officer. He is also a principal of Westport Capital Management Corporation, JWH Financial Products, Inc., and JWH Securities, Inc. Prior to joining JWH in October 1998, Mr. Tefft was the Director of MIS and a vice president at Harvard Management Company, Inc. where he was responsible for directing the design, development, and operation of global equity, bond, and derivative trading, accounting, and settlement systems beginning in May 1994. Mr. Tefft received a B.S. in Industrial Management from Purdue University, and an M.B.A. from Wharton School of Business at the University of Pennsylvania. Mr. David M. Kozak is a senior vice president, general counsel and secretary to the corporation. He is also a principal of JWH Financial Products, Inc., JWH Investment Management, Inc., and Westport Capital Management Corporation. Prior to joining JWH in September 1995, he had been a partner at the law firm of Chapman and Cutler, where he concentrated in commodity futures law with an emphasis on commodity money management. Mr. Kozak is currently the secretary and a director of the MFA and is a member of that organization's Executive Committee and chairman of its Government Relations Committee. He is also a member of the Special Committee on CPO/CTA Disclosure Issues and the Special Committee for the Review of Multi-tiered Regulatory Approach to National Futures Association Rules, both of the National Futures Association. He has served as chairman of the subcommittee on commodity trading advisor and commodity pool operator issues of the Futures Regulation Committee of the Association of the Bar of the City of New York. He received a B.A. from Lake Forest College, an M.A. from The University of Chicago, and a J.D. from Loyola University of Chicago. Mr. David I. Ginsberg is a member of the JWH Board of Directors and special advisor to the chairman. Mr. Ginsberg joined JWH in October 1999. He is also a principal of JWH Investment Mangement, Inc. He served as the managing director of the Multi-Manager Group at Global Asset Management from its inception in September 1989 until July 1995. This GAM group was, and continues to be, one of the largest multi-advisor groups specializing in hedge funds. Since leaving GAM, Mr. Ginsberg has been a private investor and consultant. Mr. Ginsberg received a M.B.A. with a concentration in Finance from Boston University and a B.A. from Kenyon College. Mr. Ginsberg is a member of the board of directors of GAM Diversity, Inc., a global multi-advisor hedge fund with assets in excess of $1.4 billion that specializes in hedge funds, and a director of the Adelphi Europe Fund, a hedge fund specializing in European equities. He is also vice chairman of the Florida Marlins Baseball Club LLC. Mr. Kevin S. Koshi is a senior vice president, proprietary trading, and a member of the JWH Investment Policy Committee. He is responsible for the implementation and oversight of the firm's proprietary strategies and investments. Mr. Koshi joined JWH in August 1988 as a professional in the finance department, and since 1990 has held positions of increasing responsibility in the trading department. He received a B.S. in Finance from California State University at Long Beach. Mr. Matthew J. Driscoll is a vice president, trading, and chief trader and a member of the JWH Investment Policy Committee. He is responsible for the supervision and administration of all aspects of order execution strategies and implementation of trading policies and procedures. Mr. Driscoll joined JWH in March 1991 as a member of the trading department. Since joining the firm, he has held positions of 90 increasing responsibility as they relate to the development and implementation of JWH's trading strategies and procedures; he has played a major role in the development of JWH's 24-hour trading operation. He attended Pace University. Mr. Edwin B. Twist is a director of JWH. He is also a director of JWH Financial Products, Inc. and JWH Investment Management, Inc. Mr. Twist joined JWH as internal projects manager in September 1991 and has been a director since August 1993. His responsibilities include assisting with the day-to-day administration and internal projects of JWH. Mr. Julius A. Staniewicz is a vice president, senior strategist and a member of the JWH Investment Policy Committee. He is also a principal of JWH Financial Products, Inc. He joined JWH in March of 1992. Mr. Staniewicz received a B.A. in Economics from Cornell University. The following is a list of additional principals of JWH: Mr. Andrew D. Willard, vice president, information technology; Mr. Paul D. Braica, C.P.A., vice president, analytics; Ms. Florence Y. Sofer, vice president, marketing; Mr. Robert B. Lendrim, vice president, investor services; Ms. Wendy B. Goodyear, vice president, investor services; and Mr. Kenneth S. Webster, vice president, investment support. THE JWH-REGISTERED TRADEMARK- INVESTMENT PROGRAMS JWH specializes in managing institutional and individual capital in the global futures, swaps, and forwards markets. JWH currently operates 12 investment programs. JWH utilizes the Original Investment Program and the Financial and Metals Portfolio for Spectrum Technical. THE ORIGINAL INVESTMENT PROGRAM. The Original Investment Program began trading client capital in October 1982 and was the first program offered by JWH. The Original Investment Program seeks to capitalize on long-term trends in a broad spectrum of worldwide financial and non-financial futures markets including interest rates, non-U.S. stock indices, currencies, metals, energies, and agricultural markets. This program always maintains a position--long or short--in every market traded. In 1992, a broad research effort was initiated to enhance the risk/reward ratios of the Original Investment Program without changing its trading philosophy. Global markets were added; sector allocations were shifted, with increased weighting given to financial markets; and some contracts were eliminated. The quantitative model underlying the program was not changed. Beginning in October 1995 the position size in relation to account equity in this program was reduced 25%. Today, the Original Investment Program is one of JWH's largest and historically best-performing programs, manifesting lower volatility since the above changes were implemented in 1992. THE FINANCIAL AND METALS PORTFOLIO. The Financial and Metals Portfolio, which began trading client capital in October 1984, is JWH's second longest running program. The program seeks to identify and capitalize on intermediate-term price movements in four worldwide market sectors: interest rates, currencies, non-U.S. stock indices, and metals. This program takes a position when trends are identified but may take a neutral stance or liquidate open positions in nontrending markets. Beginning in August 1992 the position size in relation to account equity in this program was reduced 50%. The quantitative model underlying the program was not changed. Since the changes were implemented in 1992 the Financial and Metals Portfolio has experienced lower volatility. As of December 31, 2000, JWH was managing approximately $118 million of client assets pursuant to its Original Investment Program, approximately $365.8 million of client assets pursuant to its Financial and Metals Portfolio and approximately $1.2 billion in all of its programs. INVESTMENT PHILOSOPHY AND METHODOLOGY. The JWH investment philosophy is based on the premise that market prices, rather than market fundamentals, are the key aggregator of information necessary to make investment decisions. The firm maintains that changes in market prices initially reflect human reactions to new or emerging information or events that will cause trends, but that prices eventually reflect all relevant information. The price adjustments process takes time, however, since reactions of market participants to changing market dynamics initially may be inefficient; that is, investors may not react immediately to information because 91 of differing abilities to process and evaluate data, differing levels of risk tolerance, or uncertainty. Gradual price adjustments manifest themselves in long-term trends, which themselves can influence the course of events and from which profit opportunities can arise. JWH believes that such market inefficiencies can be exploited through a combination of trend detection and risk management. There is strong economic and statistical evidence to suggest that trends do exist in most markets although they may be difficult to identify. Since the firm's founding, JWH has employed analytical methods to identify short- to long-term trends. Comprehensive research undertaken by the firm's founder, John W. Henry, led to the development of disciplined systematic quantitative models. JWH's computer models examine market data for systematic price behavior or relationships which will characterize a trend. When price trends are identified, the JWH trading system generates buy and sell signals for implementing trades. The strict application of these signals is one of the most important aspects of JWH's investment process. DURATION OF POSITIONS HELD. JWH's historical performance demonstrates that, because trends often last longer than most market participants expect, significant returns can be generated from positions held over a long period of time. Therefore, market exposure to profitable positions is not changed based on the time horizon of the trade; positions held for two to four months are not unusual, and positions have been held for more than one year. Losing positions are generally pared relatively quickly, with most closing within a few days or weeks. However, if the JWH system detects a profitable underlying trend, a position trading at a loss may be retained in order to capture the potential benefits of participating in that trend. Throughout the investment process, risk controls designed to reduce the possibility of an extraordinary loss in any one market are maintained. DISCRETIONARY ASPECTS. JWH at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively. This could occur, for example, when JWH determines that markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. Subjective aspects in JWH's application of its quantitative models also include the determination of position size in relation to account equity, timing of commencement of trading an account, the investment of assets associated with additions, redemptions, and reallocations, contracts and contract months traded, and effective trade execution. PROGRAM MODIFICATIONS. Proprietary research is conducted on an ongoing basis to refine the JWH investment strategies. While the basic philosophy underlying the firm's investment methodology has remained intact throughout its history, the potential benefits of employing more than one investment methodology, or in varying combinations, is a subject of continual testing, review, and evaluation. Extensive research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a different methodology has indicated that its use might have resulted in different historical performance. In addition, risk management research and analysis may suggest modifications regarding the relative weighting among various contracts, modifying the style and/or timing used by an investment program to trade a particular contract, the addition or deletion of particular contracts for an investment program, or a change in position size in relation to account equity. However, most investment programs maintain a consistent portfolio composition to allow opportunities in as many major market trends as possible. All cash in a JWH investment program is available to be used to trade in a JWH program, although the amounts committed to margin will vary from time to time. As capital in each JWH investment program increases, additional emphasis and weighting may be placed on markets which historically have demonstrated the greatest liquidity and profitability. Furthermore, the weighting of capital committed to various markets in the investment programs is dynamic, and JWH may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant. Spectrum Technical will generally not be informed of such changes. 92 OVERSIGHT OF TRADING POLICIES. The JWH Investment Policy Committee is a senior-level advisory group, broadly responsible for evaluating and overseeing trading policies. The Investment Policy Committee provides a forum for shared responsibility, meeting periodically to discuss issues relating to implementation of JWH's investment process and its application to markets, including research on new markets and strategies in relation to JWH trading models. Typical issues analyzed by the Investment Policy Committee include liquidity, position size, capacity, performance cycles, and new product and market strategies. The Investment Policy Committee also makes the discretionary decisions concerning investment program selection, asset allocation, and leverage levels for the Strategic Allocation Program, a multi-program asset allocation methodology. Composition of the Investment Policy Committee, and participation in its discussions and decisions by non-members, may vary over time. The Chairman participates in Investment Policy Committee meetings and decisions. The Investment Policy Committee does not make day-to-day trading decisions. ADJUSTING THE SIZE OF POSITIONS TAKEN. Adjustments in position size in relation to account equity have been and continue to be an integral part of JWH's investment strategy. At its discretion, JWH may adjust the size of a position in relation to equity in the account that is taken in markets or entire investment programs. Such adjustments may be made at certain times for some investment programs but not for others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, current market volatility, risk exposure, subjective judgment and evaluation of these and other general market conditions. Such decisions to change the size of a position may positively or negatively affect performance and will alter risk exposure for an account. Adjustments in position size relative to account equity may lead to greater profits or losses, more frequent and larger margin calls, and greater brokerage expense. No assurance is or can be given that such adjustments will result in profits for client accounts. JWH reserves the right to alter, at its sole discretion and without notification to Spectrum Technical, its policy regarding adjustments in position size relative to account equity. ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL OR FUND ACCOUNTS. Investors purchase or redeem units at net asset value on the close of business on the last business day of the month. In order to provide market exposure commensurate with the fund's equity on the date of these transactions, JWH may, in its sole discretion, adjust its investment of assets associated with additions and redemptions as near as possible to the close of business on the last trading date of the month. The intention is to provide for additions and redemptions at a net asset value that will be the same for each of these transactions, and to eliminate possible variations in net asset values that could occur as a result of inter-day price changes if, for example, additions were calculated on the first day of the subsequent month. Therefore, JWH may, at its sole discretion, adjust its investment of the assets associated with the addition or redemption as near as possible to the close of business on the last business day of the month to reflect the amount then available for trading. Based on JWH's determination of liquidity or other market conditions, JWH may decide to commence trading earlier in the day on, or before, the last business day of the month, or at its sole discretion, delay adjustments to trading for an account to a date or time after the close of business on the last day of the month. No assurance is given that JWH will be able to achieve the objectives described above in connection with fund equity level changes. The use of discretion by JWH in the application of this procedure may affect performance positively or negatively. PHYSICAL AND CASH COMMODITIES. JWH may trade in physical or cash commodities for immediate or deferred delivery, including specifically gold bullion, as well as futures, options, swaps, and forward contracts when it believes that cash markets offer comparable or superior market liquidity or ability to execute transactions at a single price. In addition, the CFTC does not comprehensively regulate cash transactions, which are subject to the risk of counterparty failure, inability, or refusal to perform with respect to such contracts. JWH will not trade physical or cash commodities for the Spectrum Series, other than in connection with exchange of futures for physical transactions, without the general partner's consent. 93 EQUITY DRAWDOWNS. Historically, only thirty to forty percent of all trades made pursuant to JWH's programs have been profitable. Large profits on a few trades in positions that typically exist for several months have produced favorable results overall. The greatest cumulative percentage decline in daily net asset value that JWH has experienced since inception in any single program on a composite basis was nearly sixty percent. You should understand that similar or greater drawdowns are possible in the future. LEGAL CONCERNS. There neither now exists nor has there previously ever been any material administrative, civil or criminal action against JWH or its principals. JWH and Mr. Henry may engage in discretionary trading for their own accounts, and may trade for the purpose of testing new investment programs and concepts, as long as such trading does not amount to a breach of fiduciary duty. In the course of such trading, JWH and Mr. Henry may take positions in their own accounts which are the same or opposite from investor positions, due to testing a new quantitative model or program, a neutral allocation system, and/or trading pursuant to individual discretionary methods. In addition, Mr. Ginsberg may engage in discretionary trading for his own account pursuant to his own personal trading approach as long as such trading does not amount to a breach of fiduciary duty; Mr. Ginsberg's trades may be the same as or opposite to positions that JWH takes for client accounts. Trades for the accounts of JWH, Mr. Henry and Mr. Ginsberg may on occasion receive better fills than Spectrum Technical's accounts. Records for these accounts will not be made available to Spectrum Technical. Employees and principals of JWH (other than Messrs. Henry and Ginsberg) are not permitted to trade in futures, options on futures or forward contracts. However, such principals and employees may invest in investment vehicles that trade futures, options on futures, or forward contracts, when an independent trader manages trading in that vehicle, and in the JWH Employee Fund, L.P., for which JWH is the trading advisor. Records for these accounts will not be made available to Spectrum Technical. Principals of JWH serve on the boards of directors and committees of various organizations, both in and outside of the managed futures industry. In such capacities, these individuals have a fiduciary duty to the other organizations they serve, and they are required to act in the best interests of those organizations, even if those actions were to be adverse to the interest of JWH and its clients. OTHER INVESTMENT PROGRAMS OPERATED BY JWH. In addition to the Original Investment Program and the Financial and Metals Portfolio, JWH currently operates 10 other investment programs in four categories for U.S. and non-U.S. investors, none of which are used by JWH for Spectrum Technical. Each program is operated separately and independently. - BROADLY DIVERSIFIED programs invest in a broad spectrum of worldwide financial and nonfinancial futures and forward markets including currencies, interest rates, non-U.S. stock indices, metals, energies, and agricultural commodities. Investment choices include a program that always maintains a position--long or short--in a market (two-phase investment style), a program that takes a position when trends are identified but may take a neutral stance or liquidate open positions in nontrending markets (three-phase investment style), and a program that uses a combination of the two-phase and three-phase investment styles (five-phase investment style) to invest in both long- and short-term price trends. - FINANCIAL programs invest in worldwide financial futures and forward markets including currencies, interest rates, and stock indices in addition to the metals and energies markets. The range of investment choices includes diversified financial programs, sector-focused programs, and a program that takes positions from several currency perspectives. Some programs use a two-phase investment style while others use a three-phase investment style. Another program uses a combination of the three-phase investment style and the three-phase forex investment style described below. - FOREIGN EXCHANGE programs invest in a wide range of world currencies primarily traded on the interbank market. Investment choices include a program that trades a range of major and minor 94 currencies, a program focused on major currencies only, and a program that trades major currencies against the U.S. dollar. Programs use either the three-phase investment style or a slight variation called three-phase forex which incorporates specialized intra-day volatility filters. - MULTIPLE STYLE programs involve the selection and allocation of assets among the other types of JWH investment programs on a discretionary basis. The Strategic Allocation Program is the only program offered in this category. THE GLOBAL DIVERSIFIED PORTFOLIO. The Global Diversified Portfolio, which began trading client capital in June 1988, seeks to capitalize on intermediate-term price movements in a broad spectrum of worldwide financial and non-financial markets including interest rates, non-U.S. stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses the three-phase investment style. JWH GLOBALANALYTICS-REGISTERED TRADEMARK- FAMILY OF PROGRAMS. Introduced in June 1997 as the firm's most broadly diversified investment program, JWH GlobalAnalytics-Registered Trademark- Family of Programs is the result of extensive research and testing by the firm. Unlike other JWH programs, which invest in intermediate- or long-term price movements, JWH GlobalAnalytics-Registered Trademark- invests in both long- and short-term price movements. The program invests in a broad spectrum of worldwide financial and non-financial markets including interest rates, non-U.S. stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses a five-phase investment style. THE WORLD FINANCIAL PERSPECTIVE. The World Financial Perspective, which began trading client capital in April 1987, seeks to capitalize on long-term price movements in five worldwide market sectors: interest rates, global stock indices, currencies, metals, and energies. Rather than concentrating on the profit potential available solely from the point of view of one country, the program trades from different vantage points. The program holds positions from several currency perspectives, including the British pound, Canadian dollar, euro, Japanese yen, Swiss franc, and U.S. dollar. This program uses the two-phase investment style. JWH modified The World Financial Perspective in January 1993 by adding new markets to enhance overall diversification. The quantitative model underlying the program was not changed. THE GLOBAL FINANCIAL PORTFOLIO. The Global Financial Portfolio, which began trading client capital in June 1994, seeks to identify and capitalize on long-term price movements in five worldwide market sectors: interest rates, global stock indices, currencies, metals, and energies. This program uses the two-phase investment style. Beginning in April 1995 the position size in relation to account equity in this program was reduced 50%. Since the change was implemented in 1995 the Global Financial Portfolio has experienced lower volatility. In 1997 the sector allocation for the program was expanded to include metals. The quantitative model underlying the program was not changed. THE INTERNATIONAL CURRENCY AND BOND PORTFOLIO. The International Currency and Bond Portfolio, which began trading client capital in January 1993, seeks to identify and capitalize on intermediate-term price movements in the currency and interest rate markets. The International Currency and Bond Portfolio targets currencies and the long-term portion of interest rate markets of major industrialized nations. Currency positions are held both as outrights--positions taken in foreign currencies versus the U.S. dollar--and cross rates--foreign currencies traded against each other. This program uses both types of the three-phase investment styles. Beginning in May 1998 the position size in relation to account equity in this program was increased 20% and commencing in March 2000 through July 2000, additional increases totaling 30% were made. Since inception, changes in position size represent an overall position size increase of 65%. The quantitative model underlying the program was not changed. THE INTERNATIONAL FOREIGN EXCHANGE PROGRAM. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. THE WORLDWIDE BOND PROGRAM. The Worldwide Bond Program, which began trading client capital in July 1996, seeks to capitalize on intermediate-term trends by investing in the long-term portion of the worldwide interest rate markets. Although the Worldwide Bond Program concentrates in one sector, diversification is achieved by trading the interest rate markets of major industrialized countries. This program uses the three-phase investment style. Due to the limited number of markets traded, the Worldwide Bond Program may be less diversified than other JWH financial programs. Beginning in March 95 2000, the position size in relation to account equity was increased approximately 25% and was increased an additional 20% in June 2000. These two changes represent an over all position size increase of 50% since March 2000. The quantitative model underlying the program was not changed. THE G-7 CURRENCY PORTFOLIO. The G-7 Currency Portfolio, which began trading client capital in February 1991, seeks to identify and capitalize on intermediate-term price movements in the highly liquid currencies of major industrialized nations. These currencies allow for trading outrights against the U.S. dollar or non-dollar cross rates. With the advent of the European Union single currency of 11 countries, the currency exposures formerly traded for Germany, France, and Italy are now executed in the euro. This program uses the three-phase forex investment style. Beginning in May 1998 the position size in relation to account equity in this program was increased 50%. The quantitative model underlying the program was not changed. THE DOLLAR PROGRAM. The Dollar Program, which began trading client capital in July 1996, seeks to identify and capitalize on intermediate-term price movements in the currency markets, trading major currencies against the U.S. dollar. This program uses the three-phase investment style. Due to the limited number of markets traded in the Dollar Program, the program may be less diversified than other JWH foreign exchange programs. THE STRATEGIC ALLOCATION PROGRAM. The Strategic Allocation Program is JWH's largest program. Its objective is capital appreciation with the reduction of the volatility and risk of loss that typically would be associated with an investment in any one JWH investment program. JWH currently operates 11 other investment programs; any and all of them may be included in the Strategic Allocation Program. JWH, through its Investment Policy Committee, allocates assets among different combinations of its investment programs which each have distinctive style, timing, and market characteristics. The allocation of the Strategic Allocation Program's assets among the investment programs, as well as the selection of the programs used for the Strategic Allocation Program, is dynamic, changing at the discretion of the Investment Policy Committee. While JWH's individual investment programs are technical, trend-following programs, the selection of programs as well as the allocation of assets among the programs in the Strategic Allocation Program are entirely discretionary. JWH is under no obligation to include any particular investment program in the Strategic Allocation Program. Generally, the maximum allocation to an individual program will not exceed 25% of an account's assets. The Investment Policy Committee also monitors and adjusts on an ongoing basis the position size in relation to account equity at which the Strategic Allocation Program trades. Factors which may affect the decision to adjust position size include: ongoing program and portfolio research, portfolio volatility, recent market volatility, perceived risk exposure and subjective evaluation of general market conditions. Position size can range from 50% to 150% of standard trading levels. The Strategic Allocation Program has been trading client capital since July 1996. InterRate-TM- began trading client capital in 1988 and closed in 1996. This program was designed to enhance returns available in U.S. treasury bills to provide both secure income and collateral for a portfolio of interbank forward and exchange-traded futures contracts. The Yen Financial Portfolio, which began trading client capital in 1992 and closed in 1997, offered investors access to a select group of Japanese financial futures markets. The program was designed to capitalize on intermediate- and long-term price movements and attempted to exit the markets during periods when sustained trends were not identified. The Delevered Yen Financial and Metals Profile, which began trading client capital in 1995 and closed in 1996, was opened at the request of a client. This program was traded at approximately one half of the position size in relation to account equity of the traditional Financial and Metals Portfolio and was traded from the perspective of the Japanese yen. 96 MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. 1. ALLIED IRISH CAPITAL MANAGEMENT, LTD. Allied Irish is an Irish corporation registered with the CFTC as a commodity trading advisor since January 1994 and is a member of the National Futures Association in that capacity. Allied Irish's business office is located at 85 Pembroke Road, Ballsbridge, Dublin 4. Allied Irish is not affiliated with the general partner, Dean Witter, or any other trading advisor for the partnerships. As a commodity trading advisor, Allied Irish specializes in trading interest rate, currency, and equity index futures contracts, as well as foreign exchange on the interbank cash market. The primary focus of Allied Irish's futures trading is on the U.S., European, and Japanese futures exchanges with some participation in other markets. Foreign exchange trading covers the major currencies. Allied Irish began trading for Spectrum Strategic on May 1, 1999. PRINCIPALS Colm Doherty became a non-executive Director of Allied Irish in January 1994. He joined AIB Group in September 1989 and in January 1994 he became Head of Investment Banking in the Capital Markets Division. In August 1999, he became Group General Manager of AIB Capital Markets. He is responsible for AIB's investment banking, international treasury and corporate lending businesses. Mr. Doherty formerly worked with First Chicago, a commercial bank, from July 1984 as Vice President and General Manager and prior to that he had a career in Industrial Credit Corporation as a senior lending executive. Dr. Eileen Fitzpatrick became a non-executive Director of Allied Irish in August 1997. She is the Managing Director and Chief Investment Officer of AIB Investment Managers Limited, an investment advisor and subsidiary of AIB Group, a position she has held since April 2000. She was previously Investment Director of AIB Investment Managers Limited from September 1996. She had previously worked as Head of International Equity Sales in Goodbody Stockbrokers, a securities brokerage firm, from March 1995 to September 1996, and in the same capacity at NCB stockbrokers, a securities brokerage firm, from November 1993 to February 1995. Before that she had worked with AIB Investment Managers as Head of International Equity Management from October 1988 to October 1993. Gerry Grimes is Managing Director of Allied Irish, an associated person of Allied Irish and a member of the Institute of Bankers. He became registered as an associated person of Allied Irish in January 1994. For 10 years up to March 1988, Mr. Grimes was employed by the Central Bank of Ireland in the following investment management positions: Chief Dealer, Money Market Division; Chief Dealer, Management of Official External Reserves; and Chief Forex Dealer. He represented Ireland on sub-committees of the European Central Bank Governors Committee in Basle. He has experience in liquidity and interest rate management, investment of external reserves ($5 billion) and their currency allocation and the management of the Irish pound in the European Exchange Rate Mechanism. Mr. Grimes joined Gandon Securities as a trader in March 1988 where he traded a range of interest rate contracts, and was appointed a Director in October 1990. He was an associated person with Gandon Fund Management from July 1991 to September 1993. From mid 1991, he was responsible for the development of Gandon Fund Management's activities including the marketing and development of managed futures programs. He left Gandon Securities and Gandon Fund Management in September 1993 and joined Allied Irish that month. Mr. Grimes was a founding member of Allied Irish and is now responsible for the overall management, development, and control of Allied Irish's activities. Ian Kelly became Company Secretary of Allied Irish in August 1997. He is a member of the Institute of Chartered Accountants of Ireland. He is Chief Operating Officer of Allied Irish and is responsible for financial control, compliance, and the back-office operations of the company. He joined Allied Irish in August 1997. Prior to joining Allied Irish, he worked from July 1994 to August 1997 in Financial Control in AIB Capital Markets Plc., an investment bank, and before that he worked with Coopers & Lybrand, an accountancy firm, from 1987 to June 1994. Maeliosa O'hOgartaigh became a non-executive Director of Allied Irish in August 1997. Mr. O'hOgartaigh is a member of the Institute of Chartered Accountants Ireland and is currently Financial Controller of AIB Capital Markets Plc., a position he has held since March 1995. He became a principal of Allied Irish in 97 May 1995 when he was appointed Company Secretary to Allied Irish, a position now held by Mr. Ian Kelly. Prior to joining AIB in November 1989, Mr. O'hOgartaigh worked with Arthur Andersen & Co., an accountancy firm. John Parsons became a Director of Allied Irish in January 1995. He graduated from Queen's University, Belfast with a B.Sc. in Computer Science and Statistics in 1986, and went on to obtain a Master of Business Administration degree from Cardiff University, in 1987. Before joining Allied Irish, Mr. Parsons worked for SBC Warburg in London as a proprietary trader in the Fixed Interest & Treasury Division. Prior to that, he worked with the Bank of Ireland Group from January 1989 to March 1993, initially as a Portfolio Manager with the Bank's fund management group and ultimately as Head of European Government Bonds with the Bank's Treasury operation. Mr. Parsons trades a portion of the Worldwide Financial Futures Program and he is the sole trader of the Equity Program offered by Allied Irish. Neil Ramsey became a non-executive Director of Allied Irish in November 1997. He is Chairman and Chief Executive Officer of Ramsey Quantitative Systems Inc., an investment adviser based in Kentucky, where he is responsible for the leadership of quantitative strategies development and directing the investments of all outside client capital allocated to the company. He is also the founder and President of Ramsey Financial Inc., a Kentucky corporation which is registered with the CFTC as a commodity pool operator, commodity trading advisor and introducing broker, and is a member of the National Futures Association. Ramsey Financial is engaged in the management of proprietary and client investment capital through the allocation of funds to independent money managers as well as managing a portion of the funds on a discretionary basis. Prior to joining RFI he was a consultant with Boston Consulting Group where he worked with domestic and foreign multinationals in developing corporate strategies. Michael Swift joined Allied Irish in August 1998 and is a Director of Allied Irish. Mr. Swift is involved in product and market research. In 1984 he graduated from University College, Galway, with a Bachelor of Commerce degree and joined the Bank of Ireland Group in July 1984 where he worked in a number of investment positions until July 1998. From June 1997 to July 1998 he held the position of Head of Foreign Exchange and Euro Interest Rate Trading. Between September 1994 and May 1997 he was Treasurer in the Bank's New York office, where he was responsible for trading foreign exchange and US interest rate markets. Prior to this he was Head of the Bank's Irish pound interest rate trading desk from May 1993. Mr. Swift traded a portion of the Worldwide Financial Futures Program between August 1998 and August 1999. David Tease is a Director of Allied Irish and an associated person. He became registered as an associated person of Allied Irish in January 1994. In 1975 he obtained a masters degree in agricultural economics from Queen's University, Belfast. Initially, Mr. Tease worked as an Economist with the Northern Ireland Department of Agriculture and then joined the Agricultural Credit Corporation (now known as ACC Bank) a semi-state financial institution. He became Treasury Manager there in 1984. In September 1985, Mr. Tease obtained a Master of Business Administration degree from University College, Dublin. From October 1986, he was employed by Citicorp Investment Bank, Dublin and was Vice President in charge of trading Irish pound, UK pound, and US dollar government bonds. In June 1988 he was appointed Director of International Bond Trading with Bank of Ireland Group Treasury where he was in control of the international bond desk trading a range of international interest rate markets. In April 1989, he joined Gandon Securities as Executive Director involved with securities trading. Subsequently, Mr. Tease was made responsible for trading in international fixed interest rate markets and strategic positioning in short-term interest rates and currencies. He acted as an associated person with Gandon Fund Management from July 1991 to September 1993. He was responsible for a team of interest rate traders and during his last two years he was the major trader in Gandon Fund Management's Global Financial program. He left Gandon Securities and Gandon Fund Management in September 1993 and joined Allied Irish that month. Mr. Tease was a founding member of Allied Irish and trades a portion of the Worldwide Financial Futures Program. Allied Irish and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. 98 ALLIED IRISH'S TRADING STRATEGIES Allied Irish offers three trading programs, but will only trade the Worldwide Financial Futures Program for Spectrum Strategic. Trading for Spectrum Strategic will be at four times the leverage Allied Irish normally applies for the Worldwide Financial Futures Program. The two other trading programs offered by Allied Irish are the Foreign Exchange Program and the Equity Index Program. WORLDWIDE FINANCIAL FUTURES PROGRAM The Worldwide Financial Futures Program is designed to provide returns using a multi-trader trading approach on a broad range of financial instruments. The capital is sub-allocated to a range of trading styles, including a portion traded by two individual traders, Mr. Tease and Mr. Parsons. The allocation of capital to the individual traders may be altered at the discretion of Allied Irish. A portion is traded using a systematic approach. Diversification is enhanced because no overall house view is imposed on the traders in the program, and this independence of operation is viewed as a key strength. Over several years Mr. Tease has established a knowledge of the main industrial economies and their financial markets. This has been achieved by a process of studying these economies through an ongoing review of relevant research and by building up a substantial network of contacts with market economists and opinion formers. Against this background understanding of the main economies, Mr. Tease looks for trading opportunities which fit with his fundamental view of where interest rates should be headed versus their current levels. Account is taken of market technicals, especially momentum as expressed in stochastic analysis, for the timing of trade execution, while resistance and support levels as defined by congestion patterns help with appropriate entry and exit points. Mr. Tease prefers to establish trades that prevail over a 1-3 week time-frame, but this can depend on market conditions. Trades that produce a substantial proportion of the expected return in a short time are usually exited. Mr. Parsons' approach to trading markets is based on a fundamental analysis of economic, fiscal, and monetary developments in the world's major economies. The majority of his trading activity is European-based. He believes that the key to successful trading in Europe is a clear understanding of German monetary developments. Having compiled a set of expectations for the major interest rate, equity, and foreign exchange markets, Mr. Parsons then looks for significant levels of divergence relative to the market's expectations as a signal to enter a particular position. He uses technical analysis to help identify trends and trend changes as well as to seek to improve entry and exit levels. Mr. Parsons sets profit/loss parameters for each trade on entry and adopts a two week view to positioning in normal market conditions. A portion of the Worldwide Financial Futures Program is traded using a technical trading system. The system has been developed to be consistent with Allied Irish's investment approach to financial markets. The system differs from most trend following trading systems in that a profit objective is built into the trade from inception and this has created a historical return profile similar to Allied Irish's. The system utilizes a break-out oriented approach that attempts to initiate trading at low risk entry points where the market has a higher probability than average of participating in a medium- to long-term trend. The concept of the system is to allow for participation in a market when the volatility conditions of the market allow for the highest pre-conditional probability of trend persistence. The futures contracts currently traded in the Worldwide Financial Futures Program include U.S., European, and Asian interest rate, currency, and stock index contracts. For most contracts, options may also be used from time to time. Options may be either bought or sold in this program. It should be noted that in relation to currency futures on both the Chicago Mercantile Exchange and the financial derivatives division of the New York Cotton Exchange, Allied Irish may convert spot transactions to futures contracts using the exchange for physicals mechanism. As of December 31, 2000, Allied Irish was managing approximately $451 million of client assets pursuant to the Worldwide Financial Futures Program and approximately $633 million of client assets in all of its programs (including notional funds). FOREIGN EXCHANGE PROGRAM The Foreign Exchange Program specializes in trading the inter-bank foreign exchange market. A fundamental assessment of market information is the main factor underlying the trading approach. To this end an assessment of the fundamental economic policy forces at work in different countries is first made. 99 This is related to socio-political factors in play. A judgment is then made on how much of the economic and political influences are priced in following a review of international capital flows. In this regard consultation is made with a network of experts in the world's currency markets. Finally the price levels are examined in detail to determine appropriate trade parameters. EQUITY INDEX PROGRAM The objective of the Equity Index Program is to achieve value added of 10% and to maintain a Sharpe ratio of greater than one. This low-risk approach is designed to minimize correlations with major global equity returns. The underlying investment approach is broadly similar to that taken in Allied Irish's other two programs in that the main inputs are an analysis of macroeconomic and global political trends. For the Equity Index Program additional analysis is conducted in terms of an extended equity valuation framework. That framework involves a number of distinct steps. RISK MANAGEMENT The management of risk positions takes place at two levels within the programs--at the overall program level by the trading controller and at the position taking level where each trader uses his individual money management skills. Given that the programs involve a multi-trader approach, a program controller role is adopted. Mr. Grimes is the trading controller for all three programs. This role involves the following: assessing the performance and risk of the programs from an overall level as distinct from a trader level; monitoring the traders' adherence to the risk parameters for each program as set out below; allocating equity between the individual traders of a program; ensuring that the programs' overall objectives and those of individual traders are compatible; controlling the operations of the order desk and ensuring the positions are agreed between traders, order desk, back office, and counterparty; and liaising with clients and conveying their views, wishes, and concerns to the trading team. To control the levels of exposure a daily end-of-day position report including contract open positions, margin utilized by contract, and margin utilized by trader is produced for the Worldwide Financial Futures and Equity Index Programs. The report for the Foreign Exchange Program looks at positions in equivalent U.S. dollar amount versus underlying U.S. dollar equity invested. For the Worldwide Financial Futures and Equity Index Programs, margin to equity is used to control position size while in the Foreign Exchange Program a gearing of equity is used to limit position size. Given the nature of the programs offered and the experience of the trading team, a limit of 6% margin to equity is normally applied for the Worldwide Financial Futures and Equity Index Programs and a gearing of 3 times equity for the Foreign Exchange Program. PAST PERFORMANCE OF ALLIED IRISH The past performance information for the program traded by Allied Irish for Spectrum Strategic is set forth below. Allied Irish trades the net assets of Spectrum Strategic allocated to it pursuant to its Worldwide Financial Futures Program at four times the leverage normally employed by that program. Capsule A-1 is a pro forma of an account from Capsule A, adjusted for the increased leverage employed by Allied Irish for Spectrum Strategic, and also adjusted for the brokerage, management, and incentive fees applied to Spectrum Strategic. The footnotes following Capsule A are an integral part of the Capsule. You are cautioned that the performance information set forth in the following capsule performance summary is not indicative of, and may have no bearing on, any trading results which may be attained by Allied Irish or Spectrum Strategic in the future, since past performance is not a guarantee of future results and other trading advisors will be investing funds of Spectrum Strategic. In addition, Allied Irish trades the net assets allocated to it at four times the leverage it normally applies to the Worldwide Financial Futures Program, which will significantly increase volatility as well as profits and losses. Spectrum Strategic cannot assure you that Allied Irish or the partnership will make any profit or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and may generate profits where there have been realized or unrealized losses from futures interests trading. 100 CAPSULE A ALLIED IRISH CAPITAL MANAGEMENT, LTD. WORLDWIDE FINANCIAL FUTURES PROGRAM Name of commodity trading advisor: Allied Irish Capital Management, Ltd. Name of program: Worldwide Financial Futures Program Inception of trading by commodity trading advisor: November 1993 Inception of trading in program: November 1993 Number of open accounts: 23 Aggregate assets overall: $633 million Aggregate assets in program: $451 million Largest monthly drawdown past five years: (1.05%)--(November 1998) Largest monthly drawdown since inception: (2.11)%--(May 1994) Worst peak-to-valley drawdown past five years: (1.25)%--(2 months, October 1998-November 1998) Worst peak-to-valley drawdown since inception: (2.11)%--(1 month, May 1994) 2000 annual return: 5.40% 1999 annual return: 4.55% 1998 annual return: 5.06% 1997 annual return: 8.86% 1996 annual return: 12.39% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FOOTNOTES TO ALLIED IRISH CAPSULE A PERFORMANCE SUMMARY "Inception of trading by commodity trading advisor" is the date on which Allied Irish began trading client accounts. "Inception of trading in program" is the date on which Allied Irish began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Allied Irish pursuant to the program shown as of December 31, 2000. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Allied Irish as of December 31, 2000 and includes notional equity. Notional equity represents the additional amount of equity that exceeds the amount of equity actually committed to Allied Irish for management. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2000 and includes notional equity. "Largest monthly drawdown" is the largest loss experienced by a single account in the program in any calendar month during the most recent five calendar years and year-to-date expressed as a percentage of the total equity in the account and includes the month and year of such drawdown. "Worst peak-to-valley drawdown" is the largest calendar month to calendar month loss experienced by a single account in the program during the most recent five calendar years and year-to-date expressed as a percentage of total equity in the account and includes the months and years in which it occurred. For example, a worst peak-to-valley drawdown in an account of "(10)%-(1/96-8/96)" means that the peak-to-valley drawdown was 10% and lasted from January 1996 to August 1996. "Annual and year-to-date return" is computed on a compounded monthly basis assuming reinvestment of accrued profits. The rate of return is computed by reference to total equity in the program. These numbers represent the composite performance of all accounts in the program, not the performance of any specific account. 101 CAPSULE A-1 ALLIED IRISH CAPITAL MANAGEMENT, LTD. PRO FORMA OF AN ACCOUNT FROM CAPSULE A WORLDWIDE FINANCIAL FUTURES PROGRAM Largest monthly drawdown: (6.11)% - (February 2000) Worst peak-to-valley drawdown: (21.54)% - (October 1998-October 2000) 2000 annual return: (4.55)% 1999 annual return: (3.64)% 1998 annual return: (0.96)% 1997 annual return: 15.05% 1996 annual return: 32.42% FOOTNOTES TO ALLIED IRISH CAPSULE A-1 PRO FORMA PERFORMANCE SUMMARY Capsule A-1 above reflects pro forma rates of return, which are the result of the general partner and Allied Irish making pro forma adjustments to the actual past performance record of a client account managed pursuant to the Worldwide Financial Futures Program, the trading program employed for Spectrum Strategic by Allied Irish. The pro forma adjustments are an attempt to reflect the current brokerage, management and incentive fees, and historical interest income, and the degree of leverage applied for the portion of Spectrum Strategic's net assets traded by Allied Irish, as opposed to the actual fees, expenses, and interest income, and leverage applicable to the account. Capsule A-1 must be read in conjunction with the description of Allied Irish and its trading programs above. Furthermore, you must be aware that pro forma rates of return have inherent limitations: (A) pro forma adjustments are only an approximate means of modifying historical records to reflect aspects of the economic terms of a commodity pool, constitute no more than mathematical adjustments to actual performance numbers, and give no effect whatsoever to such factors as possible changes in trading approach that might have resulted from the different fee structure, interest income, leverage, and other factors applicable to Spectrum Strategic as compared to Allied Irish's actual trading; and (B) there are different means by which the pro forma adjustments could have been made. While the general partner believes that the information set forth in Capsule A-1 is relevant to evaluating an investment in Spectrum Strategic, no representation is or could be made that the capsule presents what the performance results of the portion of Spectrum Strategic's net assets traded by Allied Irish would have been in the past or are likely to be in the future. Past results are not a guarantee of future results. 2. BLENHEIM INVESTMENTS, INC. Blenheim is a New Jersey corporation which was formed in 1988 to provide commodity trading advisory services to clients. Blenheim has been registered with the CFTC as a commodity trading advisor and commodity pool operator since March 1989, and is a member of the National Futures Association in such capacities. Blenheim's address is Post Office Box 7242, Two Worlds Fair Drive, Somerset, New Jersey 08875-7242. PRINCIPALS Mr. Willem Kooyker is the Chief Executive Officer, Chairman and sole shareholder of Blenheim. He is registered with the CFTC as an associated person of Blenheim and a member of the National Futures Association in that capacity. He is a former member of the Board of Directors of the NY Coffee, Sugar and Cocoa Exchange, a former president of the NY Cocoa Clearing Association, and a former member of the NY Mercantile Exchange. He received a BA CUM LAUDE in Economics from Baruch College in New York and an MBA in International Finance and Economics from New York University. Mr. Kooyker began his trading career in the international commodities business in 1964 with Internatio-Muller in Rotterdam, The Netherlands, where eventually he became managing director of the International Trading Group. He stayed in this position until 1981, when he joined Commodities 102 Corporation, Princeton, New Jersey, where he became President. At the time, Commodities Corporation was an active fund management company, operating predominantly in the futures markets. In October 1984, Mr. Kooyker started a new company, Tricon Holding Company, Ltd., a joint venture between Commodities Corporation and a group of Middle Eastern investors, which was a trading and consulting company in the futures as well as the physicals markets predominantly directed towards energy and industrial commodities. Tricon currently remains only active in the forest products industry, where it operates two sawmills in the western states of the United States. In January 1989, Mr. Kooyker started Blenheim, an independent fund management company and an advisor to several investment funds. Concurrent, but separate from Blenheim, Mr. Kooyker is a majority owner, but not an officer, of Derivatives Portfolio Management, L.L.C., a Delaware limited liability company formed in 1993 to provide administrative, risk management, and consulting services to institutions, commodity pool operators, and individual fund managers engaged in the financial instruments, securities, and futures markets as well as the cash trading business. Derivatives Portfolio Management, L.L.C. is registered with the CFTC as a commodity pool operator, effective January 26, 1994, and is a member of the National Futures Association in that capacity. Derivatives Portfolio Management, L.L.C. is not currently managing any commodity pools. Derivatives Portfolio Management, L.L.C. has a wholly-owned subsidiary named DPM Brokerage, LLC, a Delaware limited liability company formed in 1999 to provide introduction and execution services to individual clients and private investors. DPM Brokerage, LLC is registered with the CFTC as an introducing broker, effective August 16, 1999 and is a member of the National Futures Association in that capacity. Mr. Kooyker is also sole shareholder and President of Gauss Mathematica Corporation, a New Jersey corporation that develops and leases futures trading systems. Blenheim and Gauss have entered into a license agreement that allows Blenheim to use Gauss computerized trading systems for its clients. In 1996, Mr. Kooyker became a 50% shareholder in The Thornton Group, L.L.C., a consulting company to entrepreneurial startup enterprises. Thornton performs various investment banking functions. Guy J. Castranova, has been the Secretary of Blenheim and Gauss since their inceptions. Mr. Castranova is the President and Chief Operating Officer of DPM, as well as a Vice President and Controller of Tricon. Mr. Castranova has been with Tricon since October 1986 and is responsible for the risk management of all physicals trading as well as the administration of all general and consolidation accounting. Prior to joining Tricon, Mr. Castranova was an accountant with two energy firms. In 1980 Mr. Castranova graduated from Saint Joseph's University, with a BS degree in Accounting. He is registered as an associated person and Principal of Blenheim, Tricon, and DPM, and is a member of the National Futures Association in those capacities. Blenheim and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. Such trades may or may not be in accordance with the Blenheim trading program described below. THE BLENHEIM TRADING PROGRAM Blenheim's trading program was developed by Mr. Kooyker. The objective of Blenheim's Global Markets Strategy, which is employed on behalf of Spectrum Strategic, is to capture substantial profits through the establishment of strategic primary investment positions in a variety of markets, with an emphasis in global fixed income, currency, stock indices, energy, and other commodity markets. Blenheim concentrates in those markets which, in its judgment and discretion, have a high degree of liquidity and a wide spectrum of historical price movement relative to other markets. Blenheim may, however, trade to a limited extent in illiquid instruments for which market quotations are not readily available. Diversification in an account's portfolio is a major consideration in Blenheim's trading program. While many of its trades are made on a short-term basis, Blenheim's basic strategy is to attempt to participate in long-term major price movements. As of December 31, 2000, Blenheim was managing approximately $30 million of client assets pursuant to its trading program. 103 Blenheim relies primarily on its experience in trading, and utilizes fundamental, geopolitical, and technical factors in its analysis and evaluation of the markets. Blenheim has a team of economists, financial analysts, and traders that regularly monitor world-wide economic and political trends in order to identify and evaluate possible market and price imbalances. Operating within a global framework, long-term macroeconomic indicators are assessed on a multinational, country-by-country and market specific basis. Factors such as fiscal/monetary policies and capital flows across international borders are evaluated for their potential impact on the equity, fixed income, currency, and commodity markets. Additionally, Blenheim's trading group utilizes the econometric signals as well as numerous other market sentiment factors in an effort to take advantage of short-term trading opportunities. Within the realm of technical analysis, Blenheim has developed and will continue to develop a series of systematic processes of investing that will supplement the discretionary trading efforts. In the future, Blenheim may place a greater emphasis on its non-discretionary technical analysis than on its discretionary trading efforts. The goal of the system's strategy is to achieve maximum risk adjusted profit potential. The strategy is driven not by one, but a series of trading systems, that are traded in conjunction with one another. Various techniques are employed in managing the portfolio and position volatility. Blenheim generally initiates medium size positions at a market entry level determined by it, rather than initially taking a larger position while waiting to see the direction in which the market actually moves. This initial position, generally considered the core strategic position, is typically initiated upon Blenheim's determination of an unsustainable level of market disequilibrium that has not been reflected in the current market price. In addition to managing the individual positions, Blenheim will also evaluate the positions within the context of an account's portfolio. Separate strategic positions are evaluated for direct and indirect correlation characteristics in order to further anticipate and manage portfolio volatility. Despite these precautions, Blenheim's trading program may be extremely volatile at times. The trading strategy of Blenheim has evolved and will continue to do so based on on-going research, testing of data and trading experience. Prior to 1991, Blenheim traded almost exclusively in the commodity markets, with a particular emphasis on energy products. Since then, Blenheim has become quite active in the global fixed income and currency markets. Blenheim may in its sole discretion add to the portfolio additional commodity interests or cease trading particular items. On rare occasions, Blenheim may withdraw from all markets. Blenheim's diversified portfolio of approximately thirty-five markets are actively traded on domestic and foreign markets through the use of futures, forwards, options on futures, and over-the-counter transactions. Through mid-1995, approximately 30% to 45% of equity, including notional funds, was generally committed to margin. Recently the percentage has been between 25% and 30%. In the future the percentage committed may, from time to time, be substantially higher or lower. Blenheim may leverage the account of Spectrum Strategic differently than the standard account using the Global Market Strategy, but will not leverage the account at more than 50% above the leverage of a standard account. 3. ECLIPSE CAPITAL MANAGEMENT, INC. Eclipse is a Delaware corporation organized in July 1983. Eclipse's main business address is 7700 Bonhomme, Suite 500, St. Louis, Missouri 63105. Eclipse has been registered with the CFTC as a commodity trading advisor since August 1986 and is a member of the National Futures Association in such capacity. PRINCIPALS Thomas W. Moller, the sole shareholder of Eclipse, has served as its President, CEO, and sole director since founding the firm. Mr. Moller received an undergraduate degree in Business and Economics from Vanderbilt University and a graduate degree in Accounting from the University of Kentucky. He was a Certified Public Accountant and has a background in financial planning and investment management. In 1980, as chief financial officer of a privately held company, he designed and implemented one of the first 104 variable rate loan hedge programs using interest rate futures contracts. In 1982, he formed Interest Rate Management, Inc., another commodity trading advisor which provided interest-rate-hedging advisory and management services. Since 1986, Mr. Moller has devoted his time exclusively to Eclipse and is primarily involved in the areas of trading, research, and product development. James R. Klingler, JD is Senior Vice President, Corporate Secretary and General Counsel. Mr. Klingler has a BA in Economics from Vanderbilt University and a JD from Vanderbilt University School of Law. He previously worked as an associate with the St. Louis law firm of Thompson Coburn (formerly Coburn & Croft) and as a staff attorney with Mercantile Bancorporation, also in St. Louis. From January 1991 to December 1997, he was Compliance Counsel and, subsequently, Associate Vice President with A.G. Edwards & Sons, Inc. Mr. Klingler joined Eclipse in January 1998. Ronald R. Breitigam is Vice President--Trading with primary responsibility for the implementation of the firm's trading strategies. After graduating from Pacific Union College in 1982, Mr. Breitigam became an independent floor trader at the Mid-America Commodity Exchange. He served as an institutional broker with Thomson McKinnon (1984-1985) and PaineWebber (1986) and, in 1986, formed his own trading company to work full time implementing various proprietary futures and options trading strategies. Mr. Breitigam joined Eclipse in May 1989. James W. Dille, PhD is Vice President--Research and Technology with responsibility for computer-based research, development, and operations. Dr. Dille has undergraduate and graduate engineering degrees from the University of Virginia. He also received a master's and doctorate from Harvard University in Applied Sciences, specializing in the areas of Decision and Control Theory and Computer Science. From 1987 through 1993, he worked for the Boeing Company (formerly McDonnell Douglas) in the Training Systems and Flight Simulation divisions, where he was responsible for research in the areas of computer architectures and networking. He is an affiliate professor at Washington University in St. Louis, teaching courses in numerical analysis and the simulation and analysis of complex systems. Dr. Dille joined Eclipse in January 1994. TRADING PROGRAMS Eclipse currently offers one trading program, the Global Monetary Program. The program is designed primarily for institutions, commodity pools and certain other qualified investors. The Global Monetary Program employs a systematic trading approach, using multiple trend-following and fundamentally driven models. GLOBAL MONETARY PROGRAM: This "financial, metals and energy" program requires a minimum investment of $5 million and trades a global portfolio of futures and options on futures on interest rate instruments, currencies, stock indices, precious and base metals, and energy products, as well as interbank spot and forward currency markets. A key characteristic of this program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. As of December 31, 2000, Eclipse was managing approximately $387 million of client assets pursuant to its trading program (notional funds included). TRADING APPROACH The trading program of Eclipse is systematic and its strategies are either fundamental or trend-following in nature, with the objective of capitalizing on intermediate- and long-term price trends. Eclipse makes all trading decisions pursuant to its proprietary trading, capital allocation, and risk management models. The Eclipse program makes use of multiple models to accentuate overall diversification. Fundamental models generate trading signals through the quantitative analysis of environmental, macroeconomic, and intermarket data. Trend identification models use various technical and statistical analysis techniques to identify and evaluate price trends. Capital allocation models determine the percentage of trading capital allocated to various markets and trading models. Eclipse's risk management models were developed with the objective of limiting losses, capturing profits, and conserving capital in choppy, sideways markets. The risk management principles which Eclipse employs include: 105 - using stop orders to exit trades when markets are moving against an established position (although, depending on market circumstances, such "stop-loss" orders may be difficult or impossible to execute); - diversifying positions among several different markets, futures, and/or futures groups to limit exposure in any one area; - using multiple entry and exit points; - limiting the assets committed as margin, generally within a range of 5% to 20% of assets managed, at minimum exchange margin requirements, but possibly above or below that range at certain times; and - prohibiting the use of unrealized profits in a particular futures contract as margin for additional contracts in the same or a related futures contract. Decisions whether to trade a particular futures contract are based upon various factors, including liquidity, significance in terms of desired degrees of concentration, diversification, and profit potential, both historical and at a given time. These decisions are based upon output generated by a proprietary risk management program, but require the exercise of judgment by principals of Eclipse. The decision not to trade specific contracts for certain periods or to reduce the number of contracts traded may result at times in missing significant profit opportunities which otherwise would be captured by technical strategies. The specific contracts traded in each portfolio have been selected based on liquidity, historical volatility, and the degree of past directional movement. The actual number of contracts held at any particular point in time depends on a number of factors, including evaluation of market volatility and potential risk versus return. There are occasions when a trading model may indicate that no position is appropriate in a particular contract or contract group. In addition to technical trading in futures contracts, Eclipse may also employ trading techniques such as spreads and straddles and may buy or sell futures options. Eclipse may alter its trading programs, including, without limitation, its trading strategies, commodity interests, and markets traded and trading principles if Eclipse determines that such change is in the best interest of the accounts which it manages. PAST PERFORMANCE OF ECLIPSE The past performance information for Eclipse's Global Monetary Program, the program to be traded by Eclipse for Spectrum Strategic, is set forth in Capsule A below. Eclipse will trade the net assets of Spectrum Strategic allocated to it pursuant to the Global Monetary Program at 1.5 times the leverage normally employed by that program. Capsule A-1 is a pro forma of the composite performance presented in Capsule A, adjusted for the increased leverage to be employed by Eclipse for Spectrum Strategic, and also adjusted for the brokerage, management, and incentive fees applied to Spectrum Strategic. The footnotes following Capsules A and A-1 are an integral part of those Capsules. You are cautioned that the performance information set forth in the following capsule performance summaries is not indicative of, and may have no bearing on, any trading results which may be attained by Eclipse or Spectrum Strategic in the future, since past performance is not a guarantee of future results. In addition, Eclipse trades the net assets allocated to it at 1.5 times the leverage it normally applies to the Global Monetary Program, which will significantly increase volatility as well as profits and losses. Spectrum Strategic cannot assure you that Eclipse or Spectrum Strategic will make any profit or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and may generate profits where there have been realized or unrealized losses from futures, forwards, and options trading. 106 CAPSULE A ECLIPSE CAPITAL MANAGEMENT, INC. GLOBAL MONETARY PROGRAM Name of commodity trading advisor: Eclipse Capital Management, Inc. Name of program: Global Monetary Program Inception of trading by commodity trading advisor: April 1986 Inception of trading in program: August 1990 Number of open accounts: 20 Aggregate assets overall (excluding notional): $356,556,031 Aggregate assets overall (including notional): $387,505,425 Aggregate assets in program (excluding notional): $356,556,031 Aggregate assets in program (including notional): $387,505,425 Largest monthly drawdown: (10.67)% - (April 1998) Worst peak-to-valley drawdown: (23.93)% - (October 1999 - October 2000) 2000 annual return: 4.51% 1999 annual return: 12.30% 1998 annual return: 5.03% 1997 annual return: 15.93% 1996 annual return: 30.68% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FOOTNOTES TO ECLIPSE CAPSULE A PERFORMANCE SUMMARY "Inception of trading by commodity trading advisor" is the date on which Eclipse began trading client accounts. "Inception of trading in program" is the date on which Eclipse began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Eclipse pursuant to the program shown as of December 31, 2000. "Aggregate assets overall" is the total actual equity, including cash and cash equivalents, deposited in the accounts at the carrying futures commission merchant plus committed funds shown with and without notional equity as of December 31, 2000. Notional equity represents the additional amount of equity that exceeds the amount of equity actually committed to Eclipse for management. "Aggregate assets in program" is the aggregate amount of assets in the program specified as December 31, 2000. "Largest monthly drawdown" is the largest monthly loss experienced by the program on a composite basis in any calendar month during the most recent five calendar years and year-to-date expressed as a percentage of the total equity in the program and includes the month and year of such drawdown. "Worst peak-to-valley drawdown" is the largest calendar-month-end to calendar-month-end loss experienced by the program on a composite basis during the most recent five calendar years and year-to-date expressed as a percentage of total equity in the program and includes the months and years in which it occurred. For example, a worst peak-to-valley drawdown of "(23.93)%-(October 1999 - October 2000)" means that the peak-to-valley drawdown was 23.93% and lasted from October 1999 to October 2000. "Annual return" is computed on a compounded monthly basis assuming reinvestment of accrued profits. The rate of return is computed by reference to total equity in the program. These numbers represent the composite performance of all accounts in the program, not the performance of any specific account. 107 CAPSULE A-1 ECLIPSE CAPITAL MANAGEMENT, INC. PRO FORMA OF CAPSULE A GLOBAL MONETARY PROGRAM AT 150% LEVERAGE Largest monthly drawdown: (16.38)% - (April 1998) Worst peak-to-valley drawdown: (39.23)% - (13 months, October 1999 - October 2000) 2000 annual return: (1.78)% 1999 annual return: 14.98% 1998 annual return: 2.88% 1997 annual return: 21.50% 1996 annual return: 44.63% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FOOTNOTES TO ECLIPSE CAPSULE A-1 PRO FORMA PERFORMANCE SUMMARY Capsule A-1 above reflects pro forma rates of return, which are the result of the general partner and Eclipse making pro forma adjustments to the actual past performance record of client accounts managed pursuant to the Global Monetary Program, the trading program employed for Spectrum Strategic by Eclipse. The pro forma adjustments are an attempt to reflect the current brokerage, management and incentive fees, and historical interest income, and the degree of leverage applied for the portion of Spectrum Strategic's net assets traded by Eclipse, as opposed to the actual fees, expenses and interest income and leverage applicable to the account. Capsule A-1 must be read in conjunction with the description of Eclipse and its trading programs above. Furthermore, you must be aware that pro forma rates of return have inherent limitations: (A) pro forma adjustments are only an approximate means of modifying historical records to reflect aspects of the economic terms of a commodity pool, constitute no more than mathematical adjustments to actual performance numbers, and give no effect whatsoever to such factors as possible changes in trading approach that might have resulted from the different fee structure, interest income, leverage, and other factors applicable to Spectrum Strategic as compared to Eclipse's actual trading; and (B) there are different means by which the pro forma adjustments could have been made. While the general partner believes that the information set forth in Capsule A-1 is relevant to evaluating an investment in Spectrum Strategic, no representation is or could be made that the capsule presents what the performance results of the portion of Spectrum Strategic's net assets traded by Eclipse would have been in the past or are likely to be in the future. Past results are not a guarantee of future results. MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. RXR, INC. RXR, a New York corporation, was organized in June, 1983. RXR's address is Financial Centre, 695 East Main Street, Suite 102, Stamford, Connecticut 06901. RXR has been registered as a commodity trading advisor since July 1984 and as a commodity pool operator since 1983, and is a member of the National Futures Association in such capacities. RXR is a wholly-owned subsidiary of The RXR Group Inc., a Delaware corporation, which acts as a holding company, also holding all of the stock of RXR Securities Inc. and RXR Capital Management Inc. RXR Securities is registered with the CFTC as an introducing broker and is also registered as a securities broker/dealer with the SEC. RXR Securities is a member of the NASD and of the National Futures Association. RXR Capital is registered with the CFTC as a commodity trading advisor and commodity pool operator, is a member of the National Futures Association in such capacities, and is registered as an investment adviser with the SEC. PRINCIPALS Mr. Mark Rosenberg is the founder of RXR. He is also Chairman and Chief Investment Officer of RXR and its affiliates. 108 RXR and RXR Capital were founded in 1983 and 1985, respectively, with the goal of establishing a money management company that would utilize futures, options, and derivatives in the development of innovative investment and risk management programs for both institutional and fund clients. Mr. Rosenberg serves as a member of the Board of Directors of the Futures Industry Association. He is an arbitrator for the National Futures Association and a member of the Financial Advisory Boards of both the Chicago Mercantile Exchange and New York's Commodity Exchange, Inc.. Mr. Rosenberg is also a Director of the Foundation of Finance and Banking Research. Prior to forming RXR in 1983, Mr. Rosenberg spent 14 years in the securities and futures industry, most of those years with Merrill Lynch, Pierce, Fenner & Smith Incorporated, and later at Prudential-Bache Securities, Inc., where he headed a group that specialized in institutional hedging and alternative asset management. Mr. Peter A. Hinrichs is the Chief Financial Officer, Treasurer, and a Director of RXR, RXR Capital, RXR Group and RXR Securities. He has been with RXR since its founding in 1983. Mr. Hinrichs is a member of the Investment Policy Committee and has responsibilities for Administration, Operations, Information Technology, Human Resources, and Facilities Management for RXR and its affiliates. Prior to joining RXR, Mr. Hinrichs spent several years in trading, operations, and administration at Merrill Lynch Futures Inc. and later at Prudential Bache Securities. Mr. Hinrichs graduated from Curry College in 1981 with a Bachelor of Science degree in business management. He is a member of the Board of Directors of Fountain House Inc., a non-profit rehabilitation center for the mentally ill and is an active fund raiser for a number of charitable organizations. Mr. James F. Tomeo is Executive Vice President and is a Director of the RXR and its affiliates. He has been with the firm since 1986. Mr. Tomeo is Senior Portfolio Manager and is responsible for the firm's strategic planning and project development. He is the former Chairman of the International Committee of the Managed Funds Association and is the U.S. representative to the Education and Research Committee of the Alternative Investment Management Association based in Europe. Before joining RXR, Mr. Tomeo worked for Donaldson, Lufkin and Jenrette as an alternative investment consultant and for the LTV Corporation in New York. Mr. Tomeo graduated from Bucknell University in 1980 with a Bachelor of Science degree in business administration, the University of Hartford in 1987 with a Master of Business Administration degree, and the Institute of International Studies and Training (Japanese business study program) in 1988. He also studied international finance and corporate markets at New York University. Principals and employees of RXR are not permitted to trade futures, options on futures, or forward contracts for their own accounts. Principals and employees are, however, permitted to invest in funds traded by RXR. RXR'S INVESTMENT PHILOSOPHY RXR uses a global macro investment philosophy which has its roots in Modern Portfolio Theory and the design of efficiently allocated portfolios. In the global equity and fixed income areas, RXR analyzes various fundamental information from the world economies such as growth data, labor wage rates, central bank interest rate policy, and inflation to determine its approach to the markets. In the foreign exchange and commodity components, RXR analyzes price data to determine profit and risk potential. A proprietary asset allocation model is used to adjust exposure among approximately 40 markets so that no one market or sector can dominate performance. The trading program utilized for Spectrum Global Balanced was designed to provide investors with a global investment alternative. Through the controlled use of futures and forward contracts, RXR manages both U.S. and non-U.S. capital markets, currency, and commodity exposure in a single, integrated portfolio. As of December 31, 2000, RXR was managing approximately $281.1 million of client assets pursuant to its Balanced Portfolio Program and approximately $338.6 million in all of its programs. RESEARCH AND DEVELOPMENT Research and development calls on the talents of personnel from several areas within the company. Under the leadership of Mark Rosenberg, the process begins with research. RXR has developed macro-economic and technical models that can detect price dislocations resulting from daily market activity and major changes in global business cycles. Using this information, portfolio managers construct investment portfolios that address the specific actuarial assumptions of their clients. 109 The development of the trading program utilized for Spectrum Global Balanced stems from RXR's work managing multi-asset portfolios for its institutional clients. In 1986, RXR began managing a portfolio called the Institutional Balanced Portfolio Program, composed of U.S. stock, bond, and non-U.S. financial and commodity interests. Its objective was capital appreciation with controlled volatility, a concept pioneered by Professor John Lintner of Harvard University, who conducted research on the addition of managed futures to portfolios of U.S. stocks and bonds. Effective June 1, 1998, RXR broadened the hedged equity and fixed income components to include participation in the world's major developed capital markets. No representation is made and no guarantee is given that Spectrum Global Balanced's objective will be realized or that RXR will achieve any particular level of performance or amount of profits in its trading for Spectrum Global Balanced's account. Losses incurred in the global and tangible assets component could cause Spectrum Global Balanced's account to substantially underperform accounts managed by asset allocation systems which do not include a managed futures component. In addition, because the general partner has instructed RXR to manage Spectrum Global Balanced's account at 1.4 times the amount of leverage it would normally apply in managing the actively managed component of an IBP Program account, the performance results achieved for Spectrum Global Balanced by RXR may be more volatile than an IBP Program account concurrently managed by RXR and its affiliates. Prospective investors must recognize not only that the foregoing discussion attempts to present only the most basic framework describing the trading program employed for Spectrum Global Balanced, but also due to the proprietary and confidential nature of all trading approaches, any description will inevitably be general in nature. Furthermore, RXR's trading methods are continually evolving, as are the markets themselves. MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. 1. JOHN W. HENRY & COMPANY, INC. (JWH-REGISTERED TRADEMARK-) JWH makes trading decisions for Spectrum Currency pursuant to the International Foreign Exchange Program. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. For a detailed description of JWH, its principals, and trading systems, including the International Foreign Currency Program, see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum Technical--3. John W. Henry & Company, Inc." on page - . PAST PERFORMANCE OF JWH The following are the capsule performance records of all accounts managed by JWH and JWH Investments, Inc., an affiliate of JWH which has ceased operations. All performance information is current as of December 31, 2000. The notes on page - are an integral part of these capsules. JOHN W. HENRY & COMPANY, INC. INTERNATIONAL FOREIGN EXCHANGE PROGRAM Name of commodity trading advisor: John W. Henry & Company, Inc. Name of program: International Foreign Exchange Program Inception of client account trading by commodity trading advisor: October 1982 Inception of client account trading in program: August 1986 Number of open accounts: 5 Aggregate assets overall: $1.2 billion Aggregate assets in program: $84.4 million Largest monthly drawdown: (15.3)% - (January 1992) Worst peak-to-valley drawdown: (35.9)% - (September 1992 - January 1995) 2000 annual return: 16.53% 1999 annual return: (5.1)% 1998 annual return: 13.9% 1997 annual return: 71.1% 1996 annual return: 3.7% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 110 JOHN W. HENRY & COMPANY, INC. PROGRAMS JANUARY 1, 1996 - DECEMBER 31, 2000 JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
GLOBAL FINANCIAL AND ORIGINAL INVESTMENT DIVERSIFIED METALS PORTFOLIO PROGRAM PORTFOLIO NAME OF PROGRAM: ---------------- ------------------- --------------- Inception of Client Account Trading in Program: October 1984 October 1982 June 1988 Number of Open Accounts: 26 18 8 Assets Managed in Program: $385,820,242 $118,209,582 $26,415,567 Assets Managed in JWH: $1.2 billion $1.2 billion $1.2 billion (10.1)% (14.2)% (15.0)% Worst Monthly Decline on an Individual Account Basis: (2/96) (11/98) (10/99) (30.5)% (18.5)% (24.1)% Worst Peak-to-Valley Decline on an Individual Account Basis: (6/94-1/95) (5/99-10/99) (6/95-10/95) % % % -------------- ----------------- --------------- 2000 Compound Annual Rate of Return: 13.03 3.42 16.41 1999 Compound Annual Rate of Return: (18.7) (10.7) (11.9) 1998 Compound Annual Rate of Return: 7.2 10.8 23.5 1997 Compound Annual Rate of Return: 15.2 5.7 3.3 1996 Compound Annual Rate of Return: 29.7 22.6 26.9 1995 Compound Annual Rate of Return: 38.5 53.2 19.6 JWH GLOBAL- ANALYTICS-REGISTERED TRADEMARK- GLOBAL FINANCIAL G-7 CURRENCY FAMILY OF PORTFOLIO PORTFOLIO PROGRAMS* NAME OF PROGRAM: ---------------- --------------- ------------------------------- Inception of Client Account Trading in Program: June 1994 February 1991 June 1997 Number of Open Accounts: 4 4 0 Assets Managed in Program: $29,773,688 $22,167,515 $0 Assets Managed in JWH: $1.2 billion $1.2 billion $1.2 billion (12.5)% (10.1)% (5.0)% Worst Monthly Decline on an Individual Account Basis: (5/95) (11/98) (4/98) (48.9)% (31.4)% (5.3)% Worst Peak-to-Valley Decline on an Individual Account Basis: (7/94-1/95) (10/92-1/95) (4/98-5/98) % % % --------------- --------------- ------------- 2000 Compound Annual Rate of Return: 24.96 8.14 N/A 1999 Compound Annual Rate of Return: 1.4 20.7 N/A 1998 Compound Annual Rate of Return: 9.9 (4.8) (3.6) (5 mos.) 1997 Compound Annual Rate of Return: 4.9 21.0 17.6 (7 mos.) 1996 Compound Annual Rate of Return: 32.4 14.5 N/A 1995 Compound Annual Rate of Return: 86.2 32.2 N/A JWH GLOBAL ANALYTICS-REGISTERED TRADEMARK- INTERNATIONAL CURRENCY 99 AND BOND PORTFOLIO NAME OF PROGRAM: ------------------------------- ---------------------- Inception of Client Account Trading in Program: March 1999 January 1993 Number of Open Accounts: 1 0 Assets Managed in Program: $32,818,767 $10,886,731 Assets Managed in JWH: $1.2 billion $1.2 billion (9.4)% (12.7)% Worst Monthly Decline on an Individual Account Basis: (10/99) (9/00) (15.1)% (28.5)% Worst Peak-to-Valley Decline on an Individual Account Basis: (7/99-10/99) (7/99-9/00) % % -------------- ------------------- 2000 Compound Annual Rate of Return: 20.75 5.60 1999 Compound Annual Rate of Return: (7.5) 2.3 (10 mos.) 1998 Compound Annual Rate of Return: N/A 16.1 1997 Compound Annual Rate of Return: N/A 17.0 1996 Compound Annual Rate of Return: N/A 19.9 1995 Compound Annual Rate of Return: N/A 36.5
- --------------------------- *This performance data is only through May 7, 1998. The program continues to operate, but only as a portion of a special JWH multi-program trading strategy that is currently the subject of an exclusivity agreement. For performance information subsequent to May 7, 1998, see page - for the Exclusive Fund Accounts. The Notes to JWH's Programs on page - are an integral part of this table. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 111 JOHN W. HENRY & COMPANY, INC. PROGRAMS JANUARY 1, 1996 - DECEMBER 31, 2000 (CONT'D) JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
DELEVERED YEN DENOMINATED THE WORLD FINANCIAL WORLDWIDE BOND FINANCIAL AND PERSPECTIVE DOLLAR PROGRAM* PROGRAM* METALS PROFILE NAME OF PROGRAM: ------------------- --------------- -------------- -------------- October 1995; Inception of Client Account Trading in ceased trading Program: April 1987 July 1996 July 1996 12/96 Number of Open Accounts: 2 0 0 0 Assets Managed in Program: $20,942,904 $0 $0 $0 Assets Managed in JWH: $1.2 billion $1.2 billion $1.2 billion $1.2 billion Worst Monthly Decline on an Individual (8.8)% (8.4)% (3.8)% (3.2)% Account Basis: (9/00) (5/97) (4/97) (2/96) Worst Peak-to-Valley Decline on an Individual (10.7)% (11.6)% (6.2)% (5.1)% Account Basis: (5/99-7/00) (5/97-9/97) (12/96-5/97) (2/96-8/96) % % % % ----------------- -------------- -------------- -------------- 2000 Compound Annual Rate of Return: 4.87 N/A N/A N/A 1999 Compound Annual Rate of Return (11 months): (1.6) N/A N/A N/A 1998 Compound Annual Rate of Return: 7.2 (4.9) (0.4) N/A (5 mos.) (5 mos.) 1997 Compound Annual Rate of Return: 10.4 6.8 9.5 N/A 1996 Compound Annual Rate of Return: 40.9 10.6 17.8 9.4 (6 mos.) (6 mos.) INTERRATE-TM- SAP NAME OF PROGRAM: -------------- ------------- December 1988; Inception of Client Account Trading in ceased trading Program: 7/96 7/96 Number of Open Accounts: 0 2 Assets Managed in Program: $0 $520,963,599 Assets Managed in JWH: $1.2 billion $1.2 billion Worst Monthly Decline on an Individual (3.1)% (7.8)% Account Basis: (11/94) (10/99) Worst Peak-to-Valley Decline on an Individual (19.7)% 21.7% Account Basis: (9/92-11/93) (7/99-7/00) % -------------- 2000 Compound Annual Rate of Return: N/A 20.3 1999 Compound Annual Rate of Return (11 months): N/A (1.5) 1998 Compound Annual Rate of Return: N/A 17.0 1997 Compound Annual Rate of Return: N/A 13.3 1996 Compound Annual Rate of Return: 5.79 25.5 (7 mos.) (6 mos.)
---------------------------------------------------- *This performance data is only through May 7, 1998. The program continues to operate, but only as a portion of a special JWH multi-program trading strategy that is currently the subject of an exclusivity agreement. For performance information subsequent to May 7, 1998, see page - for the Exclusive Fund Accounts. The Notes to JWH's Programs on page - bear an integral part of this table. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 112 JOHN W. HENRY & COMPANY, INC. PROGRAMS JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982 YEN FINANCIAL PORTFOLIO INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: JANUARY 1992 NUMBER OF OPEN ACCOUNTS: 0 ASSETS MANAGED IN PROGRAM: $0 ASSETS MANAGED BY JWH: $ - BILLION
AGGREGATE COMPOUND WORST WORST INCEPTION OF ASSETS ANNUAL RATE MONTHLY PEAK-TO-VALLEY ACCOUNT NO. TRADING AUGUST 31, 1999 OF RETURN DECLINE DECLINE - --------------------- ------------ --------------- ----------------- ------------ ----------------------- % % % 1 1/92 closed - 3/97 1997: (3.3) (3 mos.) (7.3) (7/95) (30.5) (4/95 - 7/96) 1996: (8.5) 2 1/93 closed - 1/97 1997: (0.1) (1 mo.) (6.9) (7/95) (29.0) (4/95 - 7/96) 1996: (9.9) 3 1/94 closed - 1/97 1997: (2.4) (1 mo.) (6.0) (7/95) (26.6) (4/95 - 7/96) 1996: (10.9) 4 6/94 closed - 3/97 1997: 1.4 (3 mos.) (6.5) (7/95) (22.3) (4/95 - 7/96) 1996: (0.6) 5 8/94 closed - 3/97 1997: (2.4) (3 mos.) (7.1) (7/95) (30.4) (4/95 - 7/96) 1996: (6.0) 6 1/95 closed - 3/97 1997: (3.7) (3 mos.) (7.5) (7/95) (35.5) (4/95 - 7/96) 1996: (13.5) 7 3/94 closed - 3/97 1997: 4.0 (3 mos.) (6.7) (7/96) (15.9) (2/96 - 7/96) 1996: 7.8 13 12/92 closed - 3/96 1996: (4.1) (3 mos.) (4.9) (7/95) (15.8) (12/93 - 1/95) 17 12/92 closed - 1/96 1996: 0.3 (1 mo.) (6.0) (7/95) (12.4) (4/95 - 10/95) 18 3/94 closed - 4/96 1996: (6.3) (4 mos.) (6.2) (7/95) (18.5) (4/95 - 4/96) 19 12/94 closed - 4/96 1996: (7.8) (4 mos.) (6.6) (7/95) (21.1) (4/95 - 4/96)
The Yen Financial Portfolio closed in March 1997. - --------- The Notes to JWH's programs on page - are an integral part of this table. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 113 NOTES TO JWH PROGRAMS' CAPSULE PERFORMANCE SUMMARIES An investor should note that the composite capsule performance presentations include individual accounts which, even though traded according to the same investment program, have materially different rates of return. The reasons for this are numerous material differences among accounts: - procedures governing timing for the commencement of trading and means of moving toward full portfolio commitment of new accounts; - the period during which accounts are active; - client trading restrictions, including futures vs. forward contracts and contract months; - trading size to equity ratio resulting from JWH procedures for the commencement of trading and full portfolio commitment for new accounts and new capital; - the size of the account, which can influence the size of positions taken and restrict the account from participating in all markets available to an investment program; - the amount of interest income earned by an account, which will depend on the rates paid by an FCM on equity deposits and/or on the portion of an account invested in interest-bearing obligations such as U.S. Treasury bills; - the amount of management and incentive fees paid to JWH and the amount of brokerage commissions paid, which will vary and will depend on the fees negotiated by the client with the broker; - the timing of orders to open or close positions; - the market conditions, which in part determine the quality of trade executions; - variations in fill prices; and - the timing of additions and withdrawals. Notwithstanding these material differences among accounts, the composite remains a valid representation of the accounts included therein. For the purpose of determining whether material differences exist among accounts traded pursuant to the same investment program, JWH utilizes the following method. The gross trading performance of each JWH investment program and each individual JWH account within the relevant program is reviewed and the following parameters established by interpretations of the Division of Trading and Markets of the CFTC are calculated: - if the arithmetic average of two percentages is greater than 10 percentage points and the difference between the two is less than 10% of their average; - if the arithmetic average of the two percentages is greater than 5 points but less than 10 points and the difference between the two is 1.5 percentage points or less; and - if the arithmetic average of the two percentages is less than 5 points and the difference between the two is 1.0 percentage point or less. If one of the above parameters is satisfied in the review, then the results within the designated range are deemed "materially the same" or "not materially different." The above parameters determine if differences between accounts are materially different. The gross trading performance of each JWH investment program and each individual JWH account within the relevant program not satisfying the above parameters is then reviewed to determine whether any material differences detected could produce misleading composite performance results. With the exception of accounts that were established at levels below JWH's current minimum account size, JWH's policy is to provide separate performance capsules when an account is consistently performing differently on a gross trading basis from the other JWH accounts traded pursuant to the same investment program and the continued inclusion of that account in the composite would create a distortion in the composite rate of return. 114 The composite rates of return indicated should not be taken as representative of any rate of return actually achieved by any single account represented in the records. You are further cautioned that the data set forth in the performance capsule records is not indicative of any results which may be attained by JWH in the future since past performance is not necessarily indicative of future results. During the periods covered by the preceding capsule performance records, and particularly since 1989, JWH has increased and decreased position size in relation to account equity in certain markets and entire investment programs, and also altered the composition of the markets and contracts for certain programs. In general since 1992, JWH began implementing certain position size adjustments that were of a more permanent nature. While historical returns represent actual performance achieved, you should be aware that the position size relative to account equity currently utilized may be significantly different from that used during previous time periods. You should be aware of the following position size adjustments relative to account equity: - Original Investment Program - reduced 25% commencing in October 1995 - Financial and Metals Portfolio - reduced 50% commencing in August 1992 - Global Financial Portfolio - reduced 50% commencing in April 1995 - International Currency and Bond Portfolio - increased 20% commencing in May 1998 and commencing in March 2000 through July 2000, additional increases totaling 30% were made. Since inception, changes in position size represent an overall position size increase of 65% - G-7 Currency Portfolio - increased 50% commencing in May 1998 - Worldwide Bond Program - increased 25% commencing in March 2000 and increased an additional 20% commencing in June 2000. These changes represent an overall position size increase of 50% since March 2000. From the beginning of the performance records shown, JWH and JWH Investments, Inc. accrued incentive fees. Interest income, management fees, commissions, and other expenses were reflected on a cash basis (with the exception of the programs specifically noted below) until August, 1998, when the accrual method was fully adopted for all programs not already utilizing that method. The recording of specified items on a cash basis before August, 1998, should not, for most months, be materially different from presenting rates of return on an accrual basis; any differences in rates of return are immaterial to the overall performance record. JWH reflected all items of net performance on an accrual basis for the G-7 Currency program and International Currency and Bond Portfolio for the entire period shown, and for the Worldwide Bond Program, Dollar Program, and JWH Global Analytics-Registered Trademark- Family of Programs from the inception of client trading. Beginning September 1, 1998, all JWH programs utilized the full accrual basis. The calculation of management and incentive fees are subject to variation due to the agreed upon definitions contained in each account's advisory agreement. Management fees range historically from 0% to 6% of assets under management; incentive fees range from 0% to 25% of trading profits. From time to time, such variations in advisory fees may have a material impact on the performance of an account. "Number of Open Accounts" is the number of accounts directed by JWH or JWH Investments, Inc. pursuant to the investment program shown as of December 31, 2000. "Assets Managed in Program" is the aggregate amount of total equity, excluding "notional" equity under management of JWH or JWH Investments, Inc. in the investment program shown as of December 31, 2000. "Worst Monthly Decline on an Individual Account Basis" is the largest monthly loss experienced by any single account in the relevant investment program in any calendar month covered by the capsule. "Loss" for these purposes is calculated on the basis of the loss experienced by the individual account, expressed as a percentage of total equity (including "notional" equity) in the account. Worst monthly decline information includes the month and year of such decline. "Worst Peak-to-Valley Decline on an Individual Account Basis" is the largest percentage decline by any single account in the relevant investment program (after eliminating the effect of additions and withdrawals) during the period covered by the capsule from any month-end net asset value, without such 115 month end net asset value being equaled or exceeded as of a subsequent month-end by the individual account, expressed as a percentage of the total equity in the account. The worst peak-to-valley decline since inception is the worst peak-to-valley decline by the program as a composite. "Compound Annual Rate of Return" is calculated by compounding the monthly rates of return over the number of periods in a given year. For example, each month's monthly rate of return in hundredths is added to one (1) and the result is multiplied by the previous month's compounded monthly rate of return similarly expressed. One (1) is then subtracted from the product. For periods less than one year, the results are year to date. Proprietary capital is included in the rates of return for the Original Investment Program, the Global Diversified Portfolio, the Global Financial Portfolio, and the G-7 Currency Portfolio pursuant to an investment in a fund. These proprietary accounts have been traded in exactly the same manner as client funds, and have been subject to all of the same fees and expenses charged to a client investment in the fund; therefore there is no material impact on the rates of return presented. The International Currency and Bond Portfolio also had proprietary capital as an investment in a fund. This proprietary account was traded in the exact same manner that client funds would be traded, and was subject to all of the same fees and expenses that would be charged to a client investment in a fund, had there been other client accounts traded; therefore there is no material impact to the rates of return presented. In addition, during the period from May 1991 through August 1995, the Financial and Metals Portfolio included two proprietary accounts which had no material impact on the rates of return. ADDITIONAL NOTE TO THE GLOBAL FINANCIAL PORTFOLIO CAPSULE PERFORMANCE RECORD The timing of individual account openings has had a material impact on compound rates of return. Based on the account startup methodology used by JWH, the performance of individual accounts composing the Global Financial Portfolio composite performance summary has varied. In 1994, the two accounts that were open generated separate rates of return of negative 44% and negative 17%, respectively. For the period January 1995 through June 1995, the three open accounts achieved separate rates of return of 101%, 75% and 67%. By June 1995, these accounts maintained mature positions and were performing consistently with each other. Due to the six month period in 1995 of varied performance, the three accounts achieved annual rates of return for 1995 of 122%, 92%, and 78%. ADDITIONAL NOTE TO THE JWH GLOBALANALYTICS-REGISTERED TRADEMARK- 99 CAPSULE PERFORMANCE RECORD In March 1999, an additional account began trading pursuant to the JWH GlobalAnalytics Family of Programs methodology. Due to the size of the account, it may have different results than other accounts using this same methodology. ADDITIONAL NOTE TO THE YEN FINANCIAL PORTFOLIO CAPSULE PERFORMANCE RECORD The Yen Financial Portfolio was traded from the Japanese yen perspective. As the equity mix between U.S. dollars and Japanese yen varied, performance from each perspective also varied. The performance of the Yen Financial Portfolio is presented on an individual account basis due to material differences among accounts' historical performance. Account performance varied historically due to a number of factors unique to this portfolio, including whether the portfolio was denominated in U.S. dollars or yen, the extent of hedging currency conversions, the amounts and frequency of currency conversions, and account size. Several of these factors that materially influenced performance depended on clients' specific choices that effectively resulted in customized client portfolios. ADDITIONAL NOTE TO THE CAPSULE PERFORMANCE RECORDS OF THE DISCONTINUED PROGRAMS Capsule performance records are included for InterRate-TM-, the Delevered Yen Denominated Financial and Metals Profile, and the Yen Financial Portfolio. All of these programs have been discontinued. 116 2. SUNRISE CAPITAL PARTNERS, LLC The principals and senior officers of Sunrise Capital Partners are as follows:
Martin P. Klitzner Principal, Managing Director Richard C. Slaughter........................................ Principal, Managing Director Dr. Gary B. Davis........................................... Principal Dr. John V. Forrest......................................... Principal Martin M. Ehrlich........................................... Principal, Vice President Marie Laufik................................................ Principal, Vice President Elissa Davis................................................ Principal
The principals of Sunrise Capital Partners will make trading decisions for Spectrum Currency pursuant to the Currency Program. For a detailed description of Sunrise Capital Partners, its principals and trading systems, other than the Currency Program, which is discussed below, see "The Trading Advisors-- Morgan Stanley Dean Witter Spectrum Select-- Sunrise Capital Management, Inc." on page - . The Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, euro currency, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. The Currency Program trades currency futures contracts on the International Monetary Market Division of the Chicago Mercantile Exchange and forward currency contracts in the interbank markets. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as crossrates selectively against each other and/or as outrights against the U.S. dollar. As of December 31, 2000 Sunrise Capital Partners was managing approximately $68 million of client assets pursuant to the Currency Program and approximately $485 million of client assets in all of its programs (notional funds excluded). SUNRISE CAPITAL PARTNERS' PERFORMANCE The following is the composite performance of all accounts managed by Sunrise Capital Partners. All performance information is current as of December 31, 2000. Only the Currency Program will be used by Spectrum Currency. You are cautioned that the performance information set forth in the following capsule performance summaries are not indicative of, and may have no bearing on, any trading results which may be attained by Sunrise Capital Partners in the future, since past performance is not a guarantee of future results and another trading advisor will be investing funds of Spectrum Currency. In addition, Spectrum Currency cannot assure you that Sunrise Capital Partners or the partnership will make any profit or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and may generate profits where there have been realized or unrealized losses from futures interests trading. 117 SUNRISE CAPITAL PARTNERS CURRENCY PROGRAM (Calculations based on Fully-Funded Subset Method) Name of commodity trading advisor: Sunrise Capital Partners Name of program: Sunrise Currency Program Inception of trading by commodity trading advisor: June 1980 Inception of trading in program: October 1985 Number of open accounts: 5 Aggregate assets overall: $485 million Aggregate assets in program: $68 million Largest monthly drawdown: (7.23)% - (February 1996) Worst peak-to-valley drawdown: (18.54)% - (July 1997 - July 1999) 2000 annual return: 15.3% 1999 annual return: 6.2% 1998 annual return: (1.9)% 1997 annual return: 10.9% 1996 annual return: 20.2% SUNRISE CAPITAL PARTNERS CIMCO~DIVERSIFIED FINANCIAL PROGRAM Name of commodity trading advisor: Sunrise Capital Partners Name of program: Sunrise CIMCO~Diversified Financial Program Inception of trading by commodity trading advisor: June 1980 Inception of trading in program: October 1990 Number of open accounts: 2 Aggregate assets overall: $485 million Aggregate assets in program: $96 million Largest monthly drawdown: (10.50)% - (2/96) Worst peak-to-valley drawdown: (18.26)% - (October 1998 - July 2000) 2000 annual return: 10.6% 1999 annual return: (0.6)% 1998 annual return: 7.7% 1997 annual return: (2.8)% 1996 annual return: 26.1% SUNRISE CAPITAL PARTNERS DIVERSIFIED PROGRAM (Calculations based on Fully-Funded Subset Method) Name of commodity trading advisor: Sunrise Capital Partners Name of program: Sunrise Diversified Program Inception of trading by commodity trading advisor: June 1980 Inception of trading in program: June 1980 Number of open accounts: 14 Aggregate assets overall: $485 million Aggregate assets in program: $48 million Largest monthly drawdown: (9.79)% - (February 1996) Worst peak-to-valley drawdown: (21.65)% - (July 1999 - June 2000) 2000 annual return: 12.4% 1999 annual return: 5.8% 1998 annual return: 17.0% 1997 annual return: 11.3% 1996 annual return: 21.7% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 118 SUNRISE CAPITAL PARTNERS EXPANDED DIVERSIFIED PROGRAM (Calculations based on Fully-Funded Subset Method) Name of commodity trading advisor: Sunrise Capital Partners Name of program: Sunrise Expanded Diversified Program Inception of trading by commodity trading advisor: June 1980 Inception of trading in program: January 1989 Number of open accounts: 20 Aggregate assets overall: $485 million Aggregate assets in program: $266 million Largest monthly drawdown: (6.19)% - (November 1998) Worst peak-to-valley drawdown: (21.15)% - (October 1998 - July 2000) 2000 annual return: 8.1% 1999 annual return: 4.4% 1998 annual return: 25.8% 1997 annual return: 20.7% 1996 annual return: 19.3% SUNRISE CAPITAL PARTNERS SHORT-TERM PROGRAM Name of commodity trading advisor: Sunrise Capital Partners Name of program: Short-Term Program Inception of trading by commodity trading advisor: June 1980 Inception of trading in program: September 2000 Number of open accounts: 1 Aggregate assets overall: $485 million Aggregate assets in program: $7.1 million Largest monthly drawdown: (4.20)% - (September 2000) Worst peak-to-valley drawdown: (4.20)% - (September 2000 - October 2000) 2000 annual return: 14.3% (4 months) SUNRISE CAPITAL PARTNERS CURRENCY OPTIONS PROGRAM Name of commodity trading advisor: Sunrise Capital Partners Name of program: Currency Options Program Inception of trading by commodity trading advisor: June 1980 Inception of trading in program: September 2000 Number of open accounts: 3 Aggregate assets overall: $485 million Aggregate assets in program: $33 million (notional funds included) Largest monthly drawdown: (5.80)% - (September 2000) Worst peak-to-valley drawdown: (5.80)% - (September 2000 - October 2000) 2000 annual return: 3.2% (4 months) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. NOTES TO SUNRISE CAPITAL PARTNERS' CAPSULE PERFORMANCE SUMMARIES In reviewing Sunrise Capital Partners' performance, prospective investors should understand that such performance is calculated on the accrual basis in accordance with generally accepted accounting principles and is "net" of all fees and charges and includes interest income applicable to the accounts comprising each composite performance record. Such a composite performance is not necessarily indicative of the performance of any individual investor account. All accounting activity and balances, for the purposes of calculating performance, are US dollar denominated. 119 The following terms used in describing Sunrise Capital Partners' performance are defined as follows: "Drawdown" means losses experienced by an account traded pursuant to the identified trading program over a specified period. Drawdowns are measured on the basis of month-end net asset values only. "Worst peak-to-valley drawdown" means the greatest cumulative percentage decline in month-end net asset value due to losses sustained by an account within a trading program during any period in which the initial month-end net asset value is not equaled or exceeded by a subsequent month-end net asset value. With respect to certain of the performance capsules set forth above, the Worst Peak-to-Valley Drawdown references a period which occurred prior to the last five calendar years as prescribed by CFTC rules. This is because the account referred to either (1) incurred a Drawdown whch began prior to the commencement of the reportable period and ended during the reportable period, or (2) was closed during the reportable period without having recovered from a Drawdown in which the Worst Peak-to-Valley Drawdown was sustained before the commencement of the reportable period. "Annual return" is the product of the monthly rates of return; i.e., (1 + the Monthly Rate of Return for the first month of the year or period) x (1 + the Monthly Rate of Return for the next succeeding month), etc. "Aggregate assets overall" includes all assets under management, in programs both open and closed to investment, for Sunrise Capital Management, Inc., Commodity Monitors, Inc. and Sunrise Capital Partners; these assets are estimated through the date indicated and may be subject to adjustment. "Aggregate assets in program" are estimated through the date indicated and may be subject to adjustment. The Fully-Funded Subset Summaries include notional funds in excess of the 10% disclosure threshold established by the CFTC and reflect the adoption of a method of presenting rate-of-return and performance disclosure authorized by the CFTC, referred to as the Fully-Funded Subset method. This method permits notional and fully-funded accounts to be included in a single performance summary. MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT INC. Morgan Stanley Dean Witter Commodities Management is a Delaware corporation and a wholly owned subsidiary of Morgan Stanley Dean Witter. The trading advisor became registered as a commodity pool operator and a commodity trading advisor on June 4, 1992, and is a member of the National Futures Association in such capacities. The trading advisor currently acts as the general partner and/or trading advisor for several U.S. and offshore funds. The trading advisor's offices are located at 1221 Avenue of the Americas, New York, New York 10020. PRINCIPALS Wayne D. Peterson is a Director and the President of Morgan Stanley Dean Witter Commodities Management. Prior to heading Morgan Stanley Dean Witter Commodities Management, Mr. Peterson worked in Morgan Stanley's Structured Products Group, having previously worked for eight years in Morgan Stanley's Commodities Department. Mr. Peterson joined Morgan Stanley in 1982, was named a Vice President in 1987 and a Principal in 1988. Mr. Peterson received a B.A. degree in mathematics and economics from Cornell University in 1980 and an M.B.A. from the University of Chicago in 1982. Mr. Peterson will be responsible for making trading decisions for the partnership. MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT'S TRADING PROGRAM The trading program employed by the trading advisor on behalf of Spectrum Commodity, which is generally technical in nature, is designed to capture the overall rate of commodity price inflation by maintaining long positions in commodity futures. The portfolio is maintained in a diversified manner and looks to overweight and underweight individual commodities based on their relative strength. The liquidity of each commodity also will influence its level of inclusion in Spectrum Commodity's portfolio. The trading program will be continuously evaluated over time and may be refined and modified in the 120 future, including the possibility, upon prior notice to investors, that Morgan Stanley Dean Witter Commodities Management may maintain short positions in commodity futures interests for Spectrum Commodity's account. The trading program encompasses a broad range of commodities, including commodity futures on metals, energy products, agriculturals, and other commodities selected by the trading advisor from time to time. At present, the trading advisor may invest Spectrum Commodity's assets in the following types of commodity futures on the exchanges indicated: Chicago Board of Trade (corn, wheat, soybeans, soybean oil, soybean meal, oats); Commodity Exchange, Inc. (platinum, silver, copper, gold); Chicago Mercantile Exchange (live cattle, feeder cattle, lean hogs, pork bellies, lumber); Coffee, Sugar & Cocoa Exchange, Inc. (coffee, sugar, cocoa); London Metal Exchange (aluminum, lead, copper, nickel, tin, zinc); New York Cotton Exchange (cotton, orange juice); International Petroleum Exchange (brent crude oil, gas oil); and New York Mercantile Exchange (crude oil, heating oil, gasoline, natural gas). The trading advisor currently limits its trading program in the following manner (although it may change these policies in the future with prior approval of the general partner): - Spectrum Commodity will maintain only long positions in commodity futures. - Spectrum Commodity trades only commodity futures that are now, or may hereafter be, traded on U.S. or non-U.S. commodity exchanges. - Spectrum Commodity will not trade futures or forwards on financial instruments (including stock indices) and foreign currencies. - The underlying value of the positions entered into in the commodity futures markets (the "portfolio value") will be targeted at 1.0 to 2.0 times the assets of Spectrum Commodity with an expected average of 1.5 times the assets of Spectrum Commodity. - Upon every portfolio reweighting: - A minimum of 10% of the assets of Spectrum Commodity will be exposed to each of the following commodities sectors: energy, precious metals and base metals. - A maximum of 20% of the portfolio value will be exposed to any one particular commodity. - A maximum of 40% of the portfolio value will be exposed to any one of the following commodities sectors: energy, precious metals and base metals. A maximum of 30% of the portfolio value will be exposed to any one of the other commodities sectors. EXCHANGE RIGHT If the conditions described below are satisfied, you may redeem your units in any partnership as of the last day of any calendar month and use the proceeds to purchase units of any of the other Spectrum Series partnerships. However, a Spectrum Series exchange will only be permitted as of the sixth month-end after you first became an investor in any Spectrum Series partnership, and as of the last day of each month thereafter. Each unit you purchase in a Spectrum Series exchange will be issued and sold at a price per unit equal to 100% of the net asset value of a unit as of the close of business on the exchange date. Any units you redeem in a Spectrum Series exchange will not be subject to a redemption charge. Units you acquire in a Spectrum Series exchange will be subject to redemption charges, but will be deemed to have the same purchase date as the units you exchanged for purposes of determining the applicability of any redemption charges. Thus, for example, if you hold units of Spectrum Strategic for 12 months, exchange those units for units of Spectrum Technical, then redeem any of those units 15 months later, you will not have to pay a redemption charge, because those units will be deemed to have been held for 27 months. When you request a Spectrum Series exchange, additional conditions must be satisfied. First, the partnership from which you are redeeming must have assets sufficient to discharge its liabilities and redeem units. In order to effect a Spectrum Series exchange, you must send a subscription agreement to a Morgan Stanley Dean Witter & Co. branch office, and that agreement must be received by the general partner at least five business days prior to the applicable exchange date. In that agreement, you must acknowledge that you are still eligible to purchase units on the exchange date. You must exchange a minimum of 50 units in a Spectrum Series exchange, unless you are liquidating your entire interest in a 121 partnership. A form of subscription agreement is annexed to this prospectus as Exhibit B, and additional copies of the subscription agreement may be obtained by written request to the general partner or from a local Morgan Stanley Dean Witter & Co. branch office. In order to effect a Spectrum Series exchange, each partnership must have a sufficient number of units registered and qualified for sale under federal and applicable state securities laws pursuant to a current prospectus. While the general partner intends to maintain a sufficient number of registered units to effect series exchanges, it is under no obligation to do so. Therefore, the general partner cannot assure you that any units will be available for sale on an exchange date. Furthermore, states may impose significant burdens on, or alter the requirements for, qualifying units for sale. In that event, the general partner may not continue qualifying units for sale in those states, and residents of those states would not be eligible for a Spectrum Series exchange. In addition, states may impose more restrictive suitability and/ or investment requirements than those set forth in the form of subscription agreement. Any such restrictions may limit the ability of residents of those states to effect a Spectrum Series exchange. In the event that not all subscription agreements can be processed because an insufficient number of units is available for sale on an exchange date, the general partner will allocate units in the manner it determines in its sole discretion. The general partner has not yet determined how it will allocate units in the event there are an insufficient number of units available on an exchange date. Units of any new partnership in the Spectrum Series may be offered to investors pursuant to exercise of the Spectrum Series exchange right. Before purchasing units of a new partnership, you will be required to receive a copy of a prospectus and any supplement to this prospectus describing the new partnership and its units, and you will be required to execute a new subscription agreement to purchase units of that partnership. Since a Spectrum Series exchange is equivalent to a redemption and an immediate reinvestment of the proceeds of the redemption, you should carefully review the portions of this prospectus describing redemptions and the tax consequences before effecting a Spectrum Series exchange. REDEMPTIONS Once you are an investor in a Spectrum Series partnership for at least six months, you may redeem all or part of your units, regardless of when such units were purchased. Redemptions may only be made in whole units, with a minimum of 50 units required for each redemption, unless you are redeeming your entire interest in a partnership. The general partner will redeem your units in the order in which they were purchased. Redemptions will only be effective as of the last day of the month in which a request for redemption in proper form has been timely received by the general partner. A "request for redemption" is a letter in the form specified by the general partner that must be sent by you to a local Morgan Stanley Dean Witter & Co. branch office and received by the general partner at least 5 business days prior to the redemption date. A form of request for redemption is annexed to the limited partnership agreement, which agreement is annexed to this prospectus as Exhibit A. Additional copies of the request for redemption may be obtained by written request to the general partner or a local Morgan Stanley Dean Witter & Co. branch office. If you redeem units, you will receive 100% of the net asset value of each unit redeemed as of the redemption date, less any applicable redemption charges. The "net asset value" of a unit is an amount equal to the partnership's net assets allocated to capital accounts represented by units, divided by the number of units outstanding. "Net assets" means the total assets of a partnership, including all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open futures, forwards, and options positions and other assets of the partnership, less the total liabilities of the partnership, including, but not limited to, all brokerage, incentive and management fees, and extraordinary expenses, as determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. The market value of a futures contract traded on a U.S. exchange means the settlement price on the exchange on which that futures contract is traded on the day net assets are being determined. However, if a futures contract could not have been liquidated on that day because of the operation of daily limits or other rules of the exchange or otherwise, the settlement price on the first subsequent day on which the futures contract could be liquidated will be the market value of that futures contract for that day. The market value of a 122 forward or futures contract traded on a foreign exchange or market means its market value as determined by the general partner on a basis consistently applied for each different variety of forward contract or futures interest. If you redeem units on or prior to the last day of the twelfth month from the date of their purchase, those units will be subject to a redemption charge equal to 2% of their net asset value on the redemption date. If you redeem units after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month from the date of their purchase, those units will be subject to a redemption charge equal to 1% of their net asset value on the redemption date. If you redeem units after the last day of the twenty-fourth month from the date of their purchase, those units will not be subject to a redemption charge. All redemption charges will be paid to Dean Witter and will not be shared with the financial advisor or additional selling agent who sold the units. Your units will be exempt from redemption charges under the following circumstances: - If you purchase $500,000 or more of units, those units will not be subject to redemption charges, but will be subject to some other restrictions on redemptions. - If you redeem units at the first redemption date following notice of an increase in brokerage, management, or incentive fees, those units will not be subject to redemption charges. - If you redeem units in a Spectrum Series exchange, the units you redeem will not be subject to redemption charges and, for purposes of determining the applicability of future redemption charges, the units you acquire will be deemed to have the same purchase date as the units you exchanged. - If you redeem units of any other partnership which Demeter serves as the general partner, the units you redeem from the other limited partnership will be subject to any applicable redemption charges, but the Spectrum Series units you purchase will not be subject to redemption charges. - If you redeem units and have either paid a redemption charge with respect to the units or held the units for at least 24 months, you will not be subject to redemption charges with respect to any newly purchased units, provided the new units are purchased within twelve months of and in an amount no greater than the net proceeds of the prior redemption, and the units are held for at least six months from the date of purchase. In that event, you will still be subject to the minimum purchase and suitability requirements. The general partner will endeavor to pay redemptions within ten business days after the redemption date. A partnership may be forced to liquidate open futures, forward, and option positions to satisfy redemptions in the event it does not have sufficient cash on hand that is not required as margin on open positions. SEE "RISK FACTORS--PARTNERSHIP AND OFFERING RISKS--RESTRICTED INVESTMENT LIQUIDITY IN THE UNITS" ON PAGE - . When you redeem units, payment will be made by credit to your customer account with Dean Witter, or by check mailed to you if your account is closed. Your right to redeem units is contingent upon the redeeming partnership having assets sufficient to discharge its liabilities on the redemption date, and timely receipt by the general partner of your request for redemption as described above. The terms and conditions applicable to redemptions in general, other than those prohibiting redemptions before the sixth month-end following the closing at which you first became an investor in a Spectrum Series partnership, and providing that redemptions may only be made as of the end of a calendar month, will also apply to redemptions effected on "special redemption dates." See "The Limited Partnership Agreements--Books and Records; Reports to Limited Partners" on page - . THE COMMODITY BROKERS DEAN WITTER REYNOLDS INC., MORGAN STANLEY & CO. INCORPORATED, AND MORGAN STANLEY & CO. INTERNATIONAL LIMITED Dean Witter Reynolds Inc., a Delaware corporation, acts as the partnerships' non-clearing commodity broker. Dean Witter, as the non-clearing commodity broker, holds each partnership's funds in customer segregated or secured accounts, and provides all required margin funds to the clearing commodity brokers. Morgan Stanley & Co. Incorporated, a Delaware corporation, acts as the partnerships' clearing commodity broker and foreign currency forward counterparty, and Morgan Stanley & Co. International Limited serves as the clearing commodity broker for trades that take place on the London Metal Exchange. Dean Witter 123 monitors each partnership's futures positions that the clearing commodity brokers report they are carrying for any errors in trade prices or trade fill. Dean Witter also serves as the non-clearing commodity broker for all, and Morgan Stanley serves as the clearing commodity broker and foreign exchange counterparty for all but one, of the other commodity pools for which Demeter serves as general partner and commodity pool operator. Morgan Stanley International serves as the clearing commodity broker for the trades of such pools that take place on the London Metal Exchange. Dean Witter is a financial services company which provides to its individual, corporate, and institutional clients services as a broker in securities, futures, and options, a dealer in corporate, municipal and government securities, an investment adviser, and an agent in the sale of life insurance and various other products and services. Dean Witter has its main business office at Two World Trade Center, New York, New York 10048. Dean Witter is a member firm of the New York Stock Exchange, the American Stock Exchange, the Chicago Board Options Exchange, and other major securities exchanges. Dean Witter is registered with the CFTC as a futures commission merchant and is a member of the National Futures Association in such capacity. Dean Witter is also registered with the SEC as a broker-dealer and is a member of the NASD. Dean Witter is currently servicing its clients through a network of approximately 500 offices nationwide with approximately 14,000 financial advisors servicing individual and institutional client accounts. Morgan Stanley & Co. Incorporated is the clearing commodity broker for all trades for the partnerships, other than for those trades on the London Metal Exchange. Morgan Stanley has its main business office at 1585 Broadway, New York, New York 10036. Morgan Stanley is registered as a futures commission merchant, is a member of the National Futures Association, and is a member of most major U.S. and foreign commodity exchanges. Morgan Stanley is registered with the SEC as a broker-dealer and is a member of the NASD. Morgan Stanley International, a United Kingdom corporation, acts as the partnerships' clearing commodity broker solely with regard to any trading on the London Metal Exchange. Morgan Stanley International has its main business office at 25 Cabot Square, Canary Wharf, London E14 4QA, England, is regulated by the United Kingdom Securities and Futures Authority as a member firm, and is a member of the London Metal Exchange and other securities and commodities exchanges worldwide. Morgan Stanley Dean Witter & Co., the parent company of Dean Witter, Morgan Stanley, and Morgan Stanley International, is a worldwide financial services firm, employing, directly and through its subsidiaries, more than 45,000 people worldwide in offices throughout the United States and 20 foreign countries. Morgan Stanley Dean Witter & Co. is a publicly-traded company listed on the New York Stock Exchange; its common stock had a market value of approximately $70 billion at December 31, 2000. At that date, Morgan Stanley Dean Witter & Co. had leading market positions in its three primary businesses (securities, asset management and credit services), and it ranked among the top eight asset managers globally, with over $502 billion in assets under management. BROKERAGE ARRANGEMENTS The partnerships' brokerage arrangements with Dean Witter, Morgan Stanley and Morgan Stanley International are discussed in "Conflicts of Interest--The brokerage arrangements with affiliates of the general partner were not negotiated at arm's-length or reviewed by any independent party for fairness" on page - , "--Customer agreements with the commodity brokers permit actions which would result in losses or lost profit opportunity" on page - , and "Description of Charges--Commodity Brokers" on pages - - - . The general partner will review at least annually the brokerage arrangements of each partnership to ensure that those arrangements are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: - the size of the partnership; - the futures, forwards, and options trading activity; - the services provided by the commodity brokers or any affiliate thereof to the partnership; - the cost incurred by the commodity brokers or any affiliate thereof in organizing and operating the partnership and offering units; 124 - the overall costs to the partnership; - any excess interest and compensating balance benefits to the commodity brokers from assets held thereby; and - if the general partner does not receive any direct compensation from the partnership for its services as general partner, the risks incurred by the general partner as general partner of the partnership; Each customer agreement sets forth a standard of liability for the commodity broker and provides for indemnities of the commodity broker. See "Fiduciary Responsibility and Liability" on page - . LITIGATION At any given time, the commodity brokers are involved in numerous legal actions, some of which seek significant damages. On September 18 and 20, 1996, purported class actions were filed in the Supreme Court of the State of New York, New York County, against Dean Witter, Demeter, Morgan Stanley Dean Witter & Co., and certain trading advisors, on behalf of all purchasers of interests in various limited partnership commodity pools sold by Dean Witter. A consolidated and amended complaint 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. The New York Supreme Court dismissed the action in November 1998, but granted the plaintiffs leave to file an amended complaint, which they did in early December 1998. The defendants filed a motion to dismiss the amended complaint with prejudice on February 1, 1999 and by decision dated December 21, 1999, the New York Supreme Court dismissed the case with prejudice. On March 3, 2000, the plaintiffs filed an appeal of the dismissal. The Morgan Stanley Dean Witter affiliated parties believe they have strong defenses to, and will vigorously contest, the action. Although the ultimate outcome of legal proceedings cannot be predicted with certainty, it is the opinion of management of the Morgan Stanley Dean Witter affiliated parties that the action's resolution will not have a material adverse effect on the financial condition or results of operations of any of the Morgan Stanley Dean Witter affiliated parties. On May 16, 1996, an NASD arbitration panel awarded damages and costs against Dean Witter and one of its financial advisors in the amount of approximately $1.1 million, including punitive damages, to three customers who alleged, among other things, fraud and misrepresentation in connection with their individually managed futures accounts (not commodity pools). On October 25, 1996, the Market Surveillance Committee of the NASD filed a formal complaint against Morgan Stanley and seven current and former traders, alleging violations of certain NASD rules relating to manipulative and deceptive practices, locked and crossed markets, and failure to supervise. Hearings were held in June and July 1997. On April 13, 1998 the Committee ruled that Morgan Stanley and the seven traders had engaged in manipulative and deceptive practices and improperly locked or crossed markets, but not that Morgan Stanley had failed to supervise its traders. The Committee levied a fine of $1,000,000 on Morgan Stanley, a fine of $100,000 and a 90-day suspension on one of its former traders, and fines of $25,000 and 30-day suspensions on each of the remaining current and former traders. On January 18, 2000 the National Adjudicatory Council, which heard the appeal, issued a ruling which upheld the Market Surveillance Committee's April 1998 decision, however, the National Adjudicatory Council reduced the firm's fine to $495,000, reversed all previously imposed suspensions against the traders, reduced the fine for each of six traders to $2,500 and dismissed all charges against the seventh trader. On January 11, 1999, the SEC brought an action against 28 NASDAQ market makers, including Morgan Stanley, and 51 individuals, including one current and one former trader employed by Morgan Stanley, for certain conduct during 1994. The core of the charges against Morgan Stanley concerns improper or undisclosed coordination of price quotes with other broker-dealers and related reporting, recordkeeping, and supervisory deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and (2), and 17(a) of the Securities Exchange Act and Rules 15c1-2, 15c2-7, and 17a-3 promulgated thereunder. Without admitting or denying the charges, Morgan Stanley consented to the entry of a cease and desist order and to the payment of a civil penalty of $350,000, disgorgement of $4,170, and to submit certain of its 125 procedures to an independent consultant for review. In addition, one current and one former trader employed by Morgan Stanley accepted suspensions of less than two months each and were fined $25,000 and $30,000 respectively. During the five years preceding the date of this prospectus, other than as described above, there have been no material criminal, civil, or administrative actions pending, on appeal, or concluded against the commodity brokers, the general partner, or any of their principals, which the general partner believes would be material to an investor's decision to invest in the partnerships. THE LIMITED PARTNERSHIP AGREEMENTS This section of the prospectus summarizes all material provisions of the limited partnership agreement of each partnership that are not discussed elsewhere in the prospectus. A form of the limited partnership agreements is annexed to the prospectus as Exhibit A. Each limited partnership agreement is identical, except as noted otherwise below or in Exhibit A. NATURE OF THE PARTNERSHIPS Spectrum Select was formed on March 21, 1991; Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced were each formed on April 29, 1994; Spectrum Commodity was formed on July 31, 1997; and Spectrum Currency was formed on October 20, 1999. Each partnership was formed under Delaware law. The fiscal year of each partnership begins on January 1 of each year and ends on the following December 31. The units that you purchase and pay for in this offering will be fully paid and nonassessable. You may be liable to a partnership for liabilities that arose before the date of a redemption or Spectrum Series exchange. Your liability, however, will not exceed the sum of your unredeemed capital contribution, undistributed profits, if any, any distributions and amounts received upon a redemption or deemed received on a Spectrum Series exchange, together with interest on any such amount. However, a partnership will not make a claim against you for any amounts received in connection with a redemption of units or a Spectrum Series exchange unless the net assets of the partnership are insufficient to discharge the liabilities of the partnership that arose before any distributions were made to you. The general partner will be liable for all obligations of a partnership to the extent that the assets of the partnership are insufficient to pay those obligations. MANAGEMENT OF PARTNERSHIP AFFAIRS You will not participate in the management or operations of a partnership. Under each limited partnership agreement, the general partner is solely responsible for managing the partnership. The general partner may use a partnership's funds only to operate the business of that partnership. The general partner may hire an affiliate to perform services for the partnership if the general partner determines that the affiliate is qualified to perform the services, and can perform those services under competitive terms that are fair and reasonable. Any agreement with an affiliate must be for a term not in excess of one year and be terminable by the partnership without penalty upon 60 days' prior written notice. Other responsibilities of the general partner include: - determining whether a partnership will make a distribution; - administering redemptions and series exchanges; - preparing monthly and annual reports; - preparing and filing tax returns for each partnership; - signing documents on behalf of each partnership and its limited partners pursuant to powers of attorney; and - supervising the liquidation of a partnership, if necessary. 126 SHARING OF PROFITS AND LOSSES You will have a capital account in each partnership in which you invest, with an initial balance equal to the amount you paid for units of the partnership. The general partner also has a capital account. Each partnership's net assets will be calculated monthly, and your capital account will be adjusted as necessary to reflect any increases or decreases that may have occurred since the preceding month. Profits and losses will be shared by the general partner and limited partners in proportion to the size of their respective capital accounts. For a description of the federal tax allocations, see "Material Federal Income Tax Considerations--Partnership Taxation--Allocation of Partnership Profits and Losses" on page - . RESTRICTIONS ON TRANSFERS OR ASSIGNMENTS While you may transfer or assign your units, the transferee or assignee may not become a limited partner without the written consent of the general partner. You may only withdraw capital or profits from a partnership by redeeming units. The general partner may withdraw any portion of its interest in a partnership that exceeds the amount required under the limited partnership agreement without prior notice to or consent of the limited partners. In addition, the general partner may withdraw or assign its entire interest in a partnership if it gives 120 days' prior written notice to the limited partners. If a majority of the limited partners elect a new general partner or partners to continue the business of the partnership, the withdrawing general partner must pay all reasonable expenses incurred by the partnership in connection with its withdrawal. Any transfer or assignment of units by you will take effect at the end of the month in which the transfer or assignment is made, subject to the following conditions. A partnership is not required to recognize a transfer or assignment until it has received at least 30 days' prior written notice from the limited partner. The notice must be signed by the limited partner and include the address and social security or taxpayer identification number of the transferee or assignee and the number of units transferred or assigned. A transfer or assignment of less than all units held by you cannot occur if as a result either party to the transfer or assignment would own fewer than the minimum number of units required for an investment in the partnership (subject to certain exceptions relating to gifts, death, divorce, or transfers to family members or affiliates). The general partner will not permit a transfer or assignment of units unless it is satisfied that the transfer or assignment would not be in violation of Delaware law or applicable federal, state, or foreign securities laws; and notwithstanding the transfer or assignment, the partnership will continue to be classified as a partnership rather than as an association taxable as a corporation under the Internal Revenue Code of 1986, as amended. No transfer or assignment of units will be effective or recognized by a partnership if the transfer or assignment would result in the termination of that partnership for federal income tax purposes, and any attempt to transfer or assign units in violation of the limited partnership agreement will be ineffective. The limited partner must pay all costs, including any attorneys' and accountants' fees, related to a transfer or assignment. AMENDMENTS; MEETINGS Each limited partnership agreement may be amended by the general partner and by limited partners owning more than 50% of the units of that partnership. In addition, the general partner may make certain amendments to a limited partnership agreement without the consent of the limited partners, including any amendment that is not adverse to the limited partners or required by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or to comply with applicable law. However, no amendment may be made to a limited partnership agreement without the consent of all partners affected if that amendment would reduce the capital account of any partner, modify the percentage of profits, losses, or distributions to which any partner is entitled, or change or alter the provisions of the limited partnership agreement relating to amendments requiring the consent of all partners. Upon written request to the general partner delivered either in person or by certified mail, you or your authorized attorney or agent may obtain a list of the names and addresses of, and units owned by, all limited partners in your partnership, provided that you pay reasonable duplicating and postage costs. Limited partners owning at least 10% of the units of a partnership may request a meeting to consider any matter upon which limited partners may vote. Upon receipt of such a request, the general partner must call a meeting of that partnership, by written notice sent by certified mail or delivered in person within 15 127 days of such request. The meeting must be held at least 30 but not more than 60 days after the mailing by the general partner of notice of the meeting. The notice must specify the date, a reasonable place and time, and the purpose of the meeting. At any meeting of the limited partners, the following actions may be taken upon the affirmative vote of limited partners owning more than 50% of the units: - amend the limited partnership agreement; - dissolve the partnership; - remove and replace the general partner; - elect a new general partner or general partners if the general partner terminates or liquidates or elects to withdraw from the partnership, or becomes insolvent, bankrupt, or is dissolved; - terminate any contract with the general partner or any of its affiliates on 60 days' prior written notice; and - approve the sale of all or substantially all of the assets of the partnership. Any of the foregoing actions may also be taken by limited partners without a meeting, without prior notice, and without a vote, by means of written consents signed by limited partners owning the required number of units. Notice of any actions taken by written consent must be given to non-consenting limited partners within seven business days. BOOKS AND RECORDS; REPORTS TO LIMITED PARTNERS The books and records of each partnership are maintained at its principal office for at least five years. You or your authorized attorney or agent will have the right during normal business hours to inspect and copy the books and records of each partnership of which you are a limited partner. Alternatively, you may request that copies of the books and records be sent to you, provided that you pay all reasonable reproduction and distribution costs. The partnership will retain copies of subscription documentation in connection with purchases and exchanges of units for at least six years. Within 30 days after the close of each calendar month, the general partner will provide such financial and other information with respect to each partnership as the CFTC and National Futures Association, from time to time, may require, together with information concerning any material change in the brokerage commissions or fees payable by the partnerships to any commodity broker. You will also receive within 90 days after the close of each fiscal year an annual report containing audited financial statements for the partnerships. Annual reports will provide a detailed statement of any transactions with the general partner or its affiliates and of fees, commissions and any compensation paid or accrued to the general partner or its affiliates. By March 15 of each year, the partnership will provide you with the tax information necessary for you to prepare your federal income tax return. The net asset value of each partnership's units, which is estimated daily by the general partner, will be promptly supplied to you upon written request. A written notice, including a description of limited partners' redemption and voting rights, will be mailed to the limited partners of a partnership within seven business days if any of the following events occur: - the net asset value of a unit decreases by at least 50% from the net asset value of that unit as of the end of the immediately preceding month; - the limited partnership agreement is materially amended; - there is any change in trading advisors or any material change in a management agreement; - there is any change in commodity brokers or any material change in the compensation arrangements with a commodity broker; - there is any change in general partners or any material change in the compensation arrangements with a general partner; - there is any change in the partnership's fiscal year; 128 - there is any material change in the partnership's trading policies as specified in the limited partnership agreement; or - the partnership ceases to trade futures, forwards, and options. If you receive a notice as to a 50% decrease in net asset value per unit, that notice will also advise you that a "special redemption date" will take place when limited partners may redeem their units in the same manner as described under "Redemptions" on page - for regular redemption dates. Further, following the close of business on the date of the 50% decrease giving rise to that notice, the partnership will liquidate all existing positions as promptly as reasonably practicable, and will suspend all futures, forwards, and options trading through the special redemption date. The general partner will then determine whether to reinstitute futures, forwards, and options trading or to terminate the partnership. In addition, subject to limits imposed under state guidelines incorporated in the limited partnership agreements, no increase in any of the management, incentive, or brokerage fees payable by the partnerships, or any of the caps on fees, may take effect until the first business day following a redemption date. In the event of such an increase: - notice of the increase will be mailed to limited partners 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; - the notice will describe the redemption and voting rights of limited partners; and - units redeemed at the first redemption date following the notice will not be subject to any redemption charges. Each limited partner expressly agrees that in the event of his death, he waives on behalf of himself and his estate the furnishing of any inventory, accounting, or appraisal of the assets of the partnership and any right to an audit or examination of the books of the partnership. PLAN OF DISTRIBUTION GENERAL Dean Witter is offering units pursuant to a selling agreement with the partnerships and the general partner. With the approval of the general partner, Dean Witter may appoint additional selling agents to make offers and sales of the units. These additional selling agents may include any securities broker which is a member in good standing of the NASD, as well as any foreign bank, dealer, institution, or person ineligible for membership in the NASD that agrees not to make any offers or sales of units within the U.S. or its territories, possessions, or areas subject to its jurisdiction, or to U.S. citizens or residents. Any such non-NASD member must also agree to comply with applicable provisions of the Conduct Rules of the NASD in making offers and sales of units. Dean Witter is offering the units on a "best efforts" basis without any agreement by Dean Witter to purchase units. The general partner may in the future register additional units of any partnership with the SEC. There is no maximum amount of funds which may be contributed to a partnership. The general partner may in the future subdivide or combine outstanding units of any partnership, in its discretion, provided that any subdivision or combination will not affect the net asset value of any limited partner's interest in the partnership. Each partnership has agreed to indemnify its trading advisors in connection with the offer and sale of units with respect to any misleading or untrue statement or alleged misleading or untrue statement of a material fact or material omission or alleged omission unrelated to its trading advisor(s). Each partnership has also agreed to indemnify Dean Witter, the general partner and any additional sellers in connection with the offer and sale of units. See "Fiduciary Responsibility and Liability" on page - . CONTINUING OFFERING Units of each partnership are being offered for sale at monthly closings held on the last day of each month. Units will be offered and sold at the net asset value of a unit of the partnership on the date of the monthly closing. The sale amount will be delivered to the partnership that sold the unit. 129 ESCROW ARRANGEMENTS During the continuing offering, if your subscription is not immediately rejected by the general partner, your subscription funds will be transferred to, and held in escrow by, The Chase Manhattan Bank, New York, New York. These subscription funds held in escrow will be invested in the escrow agent's interest-bearing money market account, and will earn the interest rate then paid by the bank on that account. If the general partner accepts your subscription, at the applicable month-end closing the escrow agent will pay your subscription funds to the appropriate partnership(s) and pay any interest earned on those funds to Dean Witter. Dean Witter in turn will credit your Dean Witter customer account with the interest. If the general partner rejects a subscription, the escrow agent will promptly pay the rejected subscription funds and any interest earned to Dean Witter, and Dean Witter will then credit your Dean Witter customer account with those amounts, and the funds will be immediately available for investment or withdrawal. If you closed your Dean Witter customer account, any subscription returned and interest earned will be paid by check. Interest will be earned on subscription funds from the day of deposit with the escrow agent to the day that funds are either paid to the appropriate partnership(s) in the case of accepted subscriptions or paid to Dean Witter in the case of rejected subscriptions. At all times during the continuing offering, and prior to each closing, subscription funds will be in the possession of the escrow agent, and at no time will the general partner hold or take possession of the funds. COMPENSATION TO DEAN WITTER EMPLOYEES AND ADDITIONAL SELLING AGENTS Except as described below, qualified employees of Dean Witter will receive from Dean Witter (payable solely from its own funds) a gross sales credit equal to 3% of the net asset value per unit as of the closing for each unit sold by them and issued at the closing. In addition, Dean Witter will continue to compensate such employees who continue to render services to limited partners with a gross sales credit of up to 86% of the brokerage fees received by Dean Witter from a partnership each month that are attributable to outstanding units sold by them. This compensation will begin: - in the case of Spectrum Select, Spectrum Technical, and Spectrum Strategic, with the seventh month following the closing at which a unit was issued; - in the case of Spectrum Global Balanced, Spectrum Currency, and Spectrum Commodity, with the tenth month following the closing at which a unit was issued; - the first month after a unit is issued pursuant to a non-series exchange; or - the month as of which such continuous compensation is first payable with respect to units purchased in a Spectrum Series exchange, but with the seventh or tenth month measured from the date the subscriber first became a limited partner in a Spectrum Series partnership. In all cases, qualified Dean Witter employees will receive continuing compensation until the applicable partnership terminates or the unit is redeemed, whichever comes first. Dean Witter employees who sell $500,000 or more of units to any single investor will not receive an initial payment equal to 3% of the net asset value per unit. Those employees will only be entitled to receive the continuing compensation payments described above attributable to the outstanding units, starting with the first month after the units are issued. No part of this compensation will be paid by the partnership and, accordingly, net assets will not be reduced as a result of such compensation. Each person receiving continuing compensation must be a Dean Witter employee at the time of receipt of payment and must be registered as an associated person with the CFTC and be a member of the National Futures Association in such capacity only after either having passed the Series 3 or Series 31 examination or having been "grandfathered" as an associated person qualified to do commodity brokerage under the Commodity Exchange Act and the CFTC's regulations. These employees must also perform additional services, including: (a) inquiring of the general partner from time to time, at the request of limited partners, as to the net asset value of each partnership's units; 130 (b) inquiring of the general partner, at the request of limited partners, regarding the futures, forwards, and options markets and the activities of the partnerships; (c) responding to questions of limited partners with respect to the monthly account statements, annual reports, financial statements, and annual tax information furnished periodically to limited partners; (d) providing advice to limited partners as to when and whether to make additional investments or to redeem or exchange units; (e) assisting limited partners in the redemption or exchange of units; and (f) providing such other services as limited partners from time to time may reasonably request. The additional compensation paid by Dean Witter may be deemed to be underwriting compensation. In addition, certain officers and directors of the general partner may receive compensation as employees of Dean Witter based, in part, on the amount of brokerage fees paid by the partnerships to Dean Witter. The selling agreement among Dean Witter, the general partner, and the partnerships provides that this compensation may only be paid by Dean Witter as long as continuing services are provided. Any limited partner may telephone, write, or visit a financial advisor at a Morgan Stanley Dean Witter branch office to avail himself of such services. Dean Witter will not pay its employees the 3% initial gross sales credit described above with respect to units purchased pursuant to a Spectrum Series exchange or non-series exchange. Such employees will, however, receive continuing gross sales credits with respect to brokerage fees received by Dean Witter from a partnership at the applicable rate. Dean Witter may at any time implement cash sales incentive and/or promotional programs for its employees who sell units. These programs will provide for Dean Witter, and not any partnership or the general partner, to pay Dean Witter's employees bonus compensation based on sales of units. Any sales or promotional program will be approved by the NASD prior to its start. The aggregate of all compensation paid to employees of Dean Witter from the initial 3% gross sales credit, the redemption charges received by Dean Witter, and any sales incentives will not exceed 10% of the proceeds of the sale of units. Dean Witter may compensate any qualified additional selling agents for each unit sold by it by paying a selling commission, from Dean Witter's own funds, as determined by Dean Witter and the additional selling agents, but not to exceed 3% of the net asset value of the unit sold. Additional selling agents who are properly registered as futures commission merchants or introducing brokers with the CFTC and are members of the National Futures Association in such capacity may also receive from Dean Witter, payable from Dean Witter's own funds, continuing compensation for providing to limited partners the continuing services described above. This additional compensation paid by Dean Witter may be up to 35% of the brokerage fees generated by outstanding units sold by additional selling agents and received by Dean Witter as commodity broker for each partnership (except for employees of affiliates of Dean Witter, who will be compensated at the same rate as employees of Dean Witter. Additional selling agents may pay all or a portion of such additional compensation to their employees who have sold units and provide continuing services to limited partners if those employees are properly registered with the CFTC and are members of the National Futures Association. Additional compensation paid by Dean Witter may be deemed to be underwriting compensation. SUBSCRIPTION PROCEDURE The minimum subscription for most subscribers is $5,000, except that the minimum subscription is: - $2,000 in the case of an IRA; or - for eligible subscribers purchasing units pursuant to a non-Spectrum Series exchange, the lesser of -- $5,000, 131 -- the proceeds from the redemption of five units, or two units in the case of an IRA, from commodity pools other than any of the Morgan Stanley Dean Witter Charter Series of partnerships, -- the proceeds from the redemption of 500 units, or 200 units in the case of an IRA, from any Charter Series partnership, or -- the proceeds from the redemption of such subscriber's entire interest in any other commodity pool which the general partner serves as general partner and commodity pool operator. A subscription may be for units of one partnership, or may be divided among two or more partnerships, provided that: - in the case of a new subscription, the minimum subscription for any one partnership is $1,000; and - in the case of a non-Spectrum Series exchange, the minimum subscription for any one partnership is the proceeds of the redemption of one unit of the other commodity pool, or 100 units in the case of any Charter Series partnership. If you already own units in a partnership and you wish to make an additional investment in the same partnership, you may subscribe for units at a monthly closing with a minimum investment in that partnership of $500. In order to make your first purchase of units of a partnership, other than by means of an exchange, you must complete, sign, and deliver to Dean Witter a subscription agreement which will authorize the general partner and Dean Witter to transfer the full subscription amount from your Dean Witter customer account to the partnership's Escrow Account. If your subscription agreement is received by Dean Witter and not immediately rejected, you must have the appropriate amount in your Dean Witter customer account on the first business day following the date that your subscription agreement is received by Dean Witter. Dean Witter will deduct the subscription amount from your customer account and transfer funds into escrow with the escrow agent on that date. If you do not have a Dean Witter customer account or an account with an affiliate of Dean Witter, or do not have sufficient funds in your existing Dean Witter customer account, you should make appropriate arrangements with your Morgan Stanley Dean Witter financial advisor, or contact your local Morgan Stanley Dean Witter branch office. Do not mail any payment to the general partner, as it will be returned to you for proper placement with the Morgan Stanley Dean Witter branch office where your account is maintained. In the case of a Spectrum Series exchange or a non-Spectrum Series exchange, you must complete, sign, and deliver to your Morgan Stanley Dean Witter financial advisor a subscription agreement, which will authorize the general partner to redeem all or a portion of your interest in a partnership or another commodity pool which the general partner serves as general partner and commodity pool operator, subject to terms of the applicable limited partnership agreement, and to use the proceeds, after deducting any applicable redemption charges, to purchase units in one or more of the partnerships. In accordance with an NASD rule, Dean Witter will not subscribe for units on your behalf if it has discretionary authority over your customer account, unless it gets prior written approval from you. If you subscribe by check, units will be issued subject to the collection of the funds represented by the check. If your check is returned unpaid, Dean Witter will notify the general partner, and the relevant partnership will cancel the units issued to you represented by the check. Any losses or profits sustained by the partnership allocable to the cancelled units will be allocated among the remaining partners. In the limited partnership agreements, each limited partner agrees to reimburse a partnership for any expense or loss (including any trading loss) incurred in connection with the issuance and cancellation of any units issued to the limited partner. Subscriptions for units are generally irrevocable by subscribers. However, you may revoke your subscription agreement and receive a full refund of the subscription amount and any accrued interest, or revoke the redemption of units in the other commodity pool in the case of an exchange, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to 132 your Morgan Stanley Dean Witter financial advisor. There may be other rescission rights under applicable federal and state securities laws. The general partner may reject any subscription, in whole or in part, in its sole discretion. A sample form of the subscription agreement is annexed to this prospectus as Exhibit B. A separate copy of the subscription agreement accompanies this prospectus or you may obtain one, after delivery of this prospectus, from a local Morgan Stanley Dean Witter branch office. You will not receive any certificate evidencing units, but you will be sent confirmations of purchases in Dean Witter's customary form. Once you are an investor in a partnership, you may make additional cash purchases of units of that partnership without executing a new subscription agreement, by completing a subscription agreement update form, a sample of which is annexed to this prospectus as Exhibit C, and by contacting your Morgan Stanley Dean Witter financial advisor and authorizing your financial advisor to deduct the additional amount you want to invest from your Dean Witter customer account. Those amounts will be held in escrow, and applied towards the purchase of units, in the same manner as initial purchases described above. However, if a new prospectus has been issued since the date of your immediately prior subscription agreement, you will be required to complete a new subscription agreement update form. Further, your Morgan Stanley Dean Witter financial advisor will be required to confirm to the general partner that the information you provided, and the representations and warranties you made, in your original subscription agreement, including, in particular, that you satisfy applicable minimum financial suitability requirements, are still true and correct. You may not use the subscription procedure described in this paragraph to purchase additional units in a partnership by way of an exchange, or to purchase units of a partnership in which you are not currently an investor; in either of those cases, you must execute a new subscription agreement. PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS Units might or might not be a suitable investment for an employee benefit plan. If you are a person with investment discretion on behalf of an employee benefit plan, before proceeding with a purchase of units, you should determine whether the purchase of units is permitted under the governing instruments of the plan, and is appropriate for that particular plan in view of its overall investment policy, the composition and diversification of its portfolio, and the other considerations discussed below. As used in this section, the term "employee benefit plans" refers to plans and accounts of various types, including their related trusts, which provide for the accumulation of a portion of an individual's earnings or compensation, as well as investment income earned thereon, typically free from federal income tax until such time as funds are distributed from the plan. These plans include corporate pension and profit-sharing plans, such as so-called "401(k)" plans, "simplified employee pension plans," so-called "Keogh" plans for self-employed individuals (including partners), and, for purposes of this discussion, individual retirement accounts, as described in Section 408 of the Internal Revenue Code of 1986, as amended. Notwithstanding the general requirement that investors in one or more partnerships must invest a minimum of $5,000, a minimum purchase requirement of $2,000 has been set for IRAs. The minimum subscription for any one of the partnerships must be at least $1,000. Greater minimum purchases may be mandated by the securities laws and regulations of certain states, and each investor should consult the subscription agreement to determine the applicable investment requirements. If the assets of an investing employee benefit plan were to be treated, for purposes of the reporting and disclosure provisions and certain other of the fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act of 1974, as amended, and Section 4975 of the Internal Revenue Code of 1986, as including an undivided interest in each of the underlying assets of a partnership, an investment in units would in general be an inappropriate investment for the plan. A U.S. Department of Labor regulation defines "plan assets" in situations where employee benefit plans purchase equity securities in investment entities such as a partnership. The regulation provides that the assets of an entity 133 will not be deemed to be "plan assets" of an employee benefit plan which purchases an equity security of the entity if the equity security is a "publicly-offered security." A "publicly-offered security" is one which is: - freely transferable; - held by more than 100 investors independent of the issuer and of each other; and - either registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, or sold to the plan as part of a public offering of such securities pursuant to an effective registration statement under the Securities Act of 1933, where the security is then timely registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934. The units currently meet, and it is expected that the units will continue to meet, the criteria of the Regulation. The general partner believes, based upon the advice of its legal counsel, that income earned by the partnerships will not constitute "unrelated business taxable income" under Section 512 of the Internal Revenue Code of 1986 to employee benefit plans and other tax-exempt entities. Although the Internal Revenue Service has issued favorable private letter rulings to taxpayers in somewhat similar circumstances, other taxpayers may not use or cite such rulings as precedent. If you have investment discretion on behalf of an employee benefit plan, you should consult a professional tax adviser regarding the application of the foregoing matters to the purchase of units. Units may not be purchased with the assets of an employee benefit plan if the general partner, Dean Witter, any additional selling agents, any trading advisor, or any of their respective affiliates either: - has investment discretion with respect to the investment of such plan assets; - has authority or responsibility to give or regularly gives investment advice with respect to such plan assets for a fee and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to the plan assets and that such advice will be based on the particular investment needs of the plan; or - is an employer maintaining or contributing to such plan. Subscribing for units does not create an IRA or other employee benefit plan. If you are considering the purchase of units on behalf of an IRA or other employee benefit plan, you must first ensure that the plan has been properly established in accordance with the Internal Revenue Code of 1986 and the regulations and administrative rulings thereunder, and that the plan has been adequately funded. Then, after all of the considerations discussed above have been taken into account, the trustee or custodian of a plan who decides to or who is instructed to do so may subscribe for units in one or more of the partnerships, subject to the applicable minimum subscription requirement per partnership. Acceptance of subscriptions on behalf of IRAs or other employee benefit plans is in no respect a representation by the general partner, Dean Witter, any additional selling agents, any partnership, or any trading advisor that the investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that the investment is appropriate for plans generally or any particular plan. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS INTRODUCTION The general partner has been advised by counsel, Cadwalader, Wickersham & Taft, that in its opinion, the following summary correctly describes the material federal income tax consequences to a U.S. taxpayer who invests in a partnership. The opinions appearing in this section are the opinions of Cadwalader, Wickersham & Taft, except as otherwise specifically noted. The following summary is based upon the Internal Revenue Code of 1986, rulings thereon, regulations promulgated thereunder, and existing interpretations thereof, any of which could be changed at any time and which changes could be retroactive. The federal income tax summary and the state and local income tax summary that follow, in general, relate only to the tax implications of an investment in the partnerships by individuals who are 134 citizens or residents of the U.S. Except as indicated below or under "Purchases by Employee Benefit Plans-ERISA Considerations," the summaries do not address the tax implications of an investment in the partnerships by corporations, partnerships, trusts, and other non-individuals. Moreover, the summaries are not intended as a substitute for careful tax planning, particularly since certain of the tax consequences of owning an interest in the partnerships may not be the same for all taxpayers, such as non-individuals or foreign persons, or in light of an investor's personal investment circumstances. A complete discussion of all federal, state, and local tax aspects of an investment in each partnership is beyond the scope of the following summary, and prospective investors are urged to consult their own tax advisors on these matters. PARTNERSHIP STATUS The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft, that in its opinion under current federal income tax law, each partnership will be classified as a partnership and not as an association (or a publicly traded partnership) taxable as a corporation. This opinion is based upon the facts set forth in this prospectus, including that a principal activity of each partnership consists of buying and selling futures, options, and forward contracts, and at least 90% of the partnership's gross income during each year consists of gains from such trading and interest income. No ruling has been requested from the Internal Revenue Service with respect to classification of each partnership and the general partner does not intend to request such a ruling. If a partnership were treated as an association (or a publicly traded partnership) taxable as a corporation, income or loss of the partnership would not be passed through to its partners, and the partnership would be subject to tax on its income at the rates applicable to corporations without deduction for any distributions to its partners. In addition, all or a portion of any distributions by the partnership to its partners could be taxable to the partners as dividends or capital gains. The discussion that follows assumes that each partnership will be treated as a partnership for federal income tax purposes. PARTNERSHIP TAXATION PARTNERS, RATHER THAN A PARTNERSHIP ARE SUBJECT TO FEDERAL INCOME TAX. None of the partnerships will pay federal income tax. Except as provided below with respect to certain nonresident aliens, each limited partner will report his distributive share of all items of partnership income, gain, loss, deduction, and credit for the partnership's taxable year ending within or with the partner's taxable year. A limited partner must report and pay tax on his share of partnership income for a particular year whether or not he has received any distributions from the partnership in that year. The characterization of an item of profit or loss will usually be determined at the partnership level. SYNDICATION EXPENSES. None of the partnerships nor any partner thereof will be entitled to any deduction for syndication expenses (I.E., those amounts paid or incurred in connection with issuing and marketing units). There is a risk that some of the brokerage fees paid to Dean Witter could be treated as a nondeductible payment by the partnerships of syndication expenses. ALLOCATION OF PARTNERSHIP PROFITS AND LOSSES. In general, each limited partnership agreement allocates items of ordinary income and expense pro rata among the partners based upon their respective capital accounts as of the end of the month in which such items are accrued. Net recognized capital gain or loss is generally allocated among all partners based upon their respective capital accounts. However, net recognized capital gain or loss is allocated first to partners who have redeemed units in the partnership during a taxable year to the extent of the difference between the amount received on the redemption and the allocation account as of the date of redemption attributable to the redeemed units. Any remaining net recognized capital gain or loss is next allocated among all those partners whose capital accounts differ from their allocation accounts based on the respective differences for each partner. The special allocation of each partnership's net gain or loss upon a redemption of units, which retains the same character as in the hands of the partnership, may alter the character of a redeeming limited partner's income (by reducing the amount of long-term capital gain recognized upon receipt of redemption proceeds) and may accelerate the recognition of income by the limited partner. 135 These allocation provisions are designed to reconcile tax allocations to economic allocations. However, the general partner cannot assure you that the Internal Revenue Service will not challenge the allocations, including each partnership's tax allocations in respect of redeemed units. If the allocation provided by each limited partnership agreement is not respected by the Internal Revenue Service for federal income tax purposes, the amount of income or loss allocated to the partners for federal income tax purposes may be increased or reduced or the character of the income or loss may be modified. CASH DISTRIBUTIONS AND REDEMPTIONS Because of the special allocation of partnership gain or loss upon a redemption of units, the amounts received upon the partial or complete redemption of a limited partner's units normally will not result in additional taxable income or loss to the limited partner. However, distributions by a partnership and amounts received upon the partial or complete redemption of a limited partner's units will be taxable to the limited partners to the extent cash distributions by a partnership or amounts received upon redemption by a limited partner exceed the partner's adjusted tax basis in his units. Such excess will be taxable to him as though it were a gain from a sale of the units. A loss will be recognized upon a redemption of units only if, following the redemption of all of a limited partner's units, the partner has any tax basis in his units remaining. In such case, the limited partner will recognize loss to the extent of the remaining basis. See "Redemptions." Generally, if a limited partner is not a "dealer" with respect to his interest in the partnership and he has held his interest in the partnership for more than one year, the gain or loss would be long-term capital gain or loss. GAIN OR LOSS ON TRADING ACTIVITY NATURE OF PARTNERSHIP INCOME. Each partnership does not expect to hold its futures, forwards or options for sale to customers. For federal income tax purposes substantially all of the profit and loss generated by each partnership from its trading activities is expected to be capital gain and loss, which in turn may be either short-term, long-term or a combination thereof. Nevertheless, certain foreign currency transactions could result in ordinary gain or loss, as discussed below. Further, interest paid to a partnership will be taxable currently to the limited partners as ordinary income. Thus, during taxable years in which little or no profit is generated from trading activities, a limited partner may still have interest income. MARK-TO-MARKET. Section 1256 contracts held at the end of a partnership's taxable year will be treated as having been sold for the fair market value on the last day of the taxable year, and gain or loss will be taken into account for the year. Gain or loss with respect to a Section 1256 contract is generally treated as short-term capital gain or loss to the extent of 40% of the gain or loss, and long-term capital gain or loss to the extent of 60% of the gain and loss. Section 1256 contracts include regulated futures contracts which are futures contracts traded on regulated U.S. and certain foreign exchanges; foreign currency contracts that are traded in the interbank market and relate to currencies for which positions are also traded through regulated futures contracts; and U.S. and certain foreign exchange-traded options on commodities, including options on regulated futures contracts, debt securities, and stock indices. While the partnerships expect that a majority of their trading activities will be conducted in Section 1256 contracts, the partnerships also expect that a portion of their trading activities will be conducted in contracts that do not presently qualify as Section 1256 contracts, such as positions in futures contracts on most foreign exchanges and foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts. SECTION 988. Currency gain or loss with respect to foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts and futures contracts traded on most foreign exchanges may be treated as ordinary income or loss under Internal Revenue Code of 1986 Section 988. Each partnership has elected to treat these contracts as Section 1256 contracts (I.E., marked-to-market at year end). Pursuant to this election, gain or loss with respect to these contracts is treated as entirely short-term capital gain or loss. Subject to certain limitations, a limited partner, other than a corporation, estate or trust, may elect to carry back net Section 1256 contract losses to each of the three preceding years. Net Section 1256 contract losses carried back to prior years may only be used to offset net Section 1256 contract gains. Generally, such losses are carried back as 40% short-term capital losses and 60% long-term capital losses. Capital 136 assets not marked to market under Section 1256, such as any non-currency forward contracts, are not subject to the 60/40 tax regime for Section 1256 contracts, and gain or loss on sale generally will be long-term only if such property has been held for more than one year. STRADDLES. If a partnership incurs a loss upon the disposition of any position which is part of a "straddle" (I.E., two or more offsetting positions), recognition of that loss for tax purposes will be deferred until the partnership recognizes the gain in the offsetting position of the straddle (or successor position, or offsetting position to the successor position). Interest and other carrying charges allocable to positions which are part of a straddle must be capitalized, rather than deducted currently. Certain modified "short sale" rules may apply to positions held by a partnership so that what might otherwise be characterized as long-term capital gain would be characterized as short-term capital gain or potential short-term capital loss as long-term capital loss. For purposes of applying the above rules restricting the deductibility of losses with respect to offsetting positions, if a limited partner takes into account gain or loss with respect to a position held by the partnership, the limited partner will be treated as holding the partnership's position, except to the extent otherwise provided in regulations. Accordingly, positions held by a partnership may limit the deductibility of realized losses sustained by a limited partner with respect to positions held for his own account, and positions held by a limited partner for his own account may limit his ability to deduct realized losses sustained by a partnership. Thus, straddles may not be used to defer gain from one taxable year to the next. Reporting requirements generally require taxpayers to disclose all unrecognized gains with respect to positions held at the end of the taxable year. The above principle, whereby a limited partner may be treated as holding partnership positions, may also apply to require a limited partner to capitalize (rather than deduct) interest and carrying charges allocable to property held by him. Where the positions of a straddle are comprised of both Section 1256 and non-Section 1256 contracts, a partnership will be subject to the mixed straddle rules of the Internal Revenue Code of 1986 and the regulations promulgated thereunder. The appropriate tax treatment of any gains and losses from trading in mixed straddles will depend on what elections a partnership makes. Each partnership has elected to place all of its positions in a "mixed straddle" account which is marked-to-market daily. Under a special account cap, not more than 50% of net capital gain may be long-term capital gain, and not more than 40% of net capital loss may be short-term capital loss. TAXATION OF LIMITED PARTNERS LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES. The amount of partnership loss, including capital loss, which a limited partner will be entitled to take into account for federal income tax purposes is limited to the tax basis of his units, except in the case of certain limited partners including individuals and closely-held C corporations, for which he is "at risk" with respect to the units as of the end of the partnership's taxable year in which such loss occurred. Generally, a limited partner's initial tax basis will be the amount paid for each unit. A limited partner's adjusted tax basis will be his initial tax basis reduced by the limited partner's share of partnership distributions, losses and expenses and increased by his share of partnership income and gains. The amount for which a limited partner is "at risk" with respect to his units in a partnership is generally equal to his tax basis for the units, less: any amounts borrowed in connection with his acquisition of the units for which he is not personally liable and for which he has pledged no property other than his units; any amounts borrowed from persons who have a proprietary interest in the partnership; and any amounts borrowed for which the limited partner is protected against loss through guarantees or similar arrangements. Because of the limitations imposed upon the deductibility of capital losses referred to below, a limited partner's share of a partnership's net capital losses, if any, will not materially reduce his federal income tax on his ordinary income. In addition, certain expenses of a partnership might be deductible by a limited partner only as itemized deductions and, therefore, will not reduce the federal taxable income of a limited partner who does not itemize his deductions. Furthermore, an individual who is subject to the alternative minimum tax for a taxable year may not realize any tax benefit from such itemized deductions. LIMITATIONS ON DEDUCTIBILITY OF PASSIVE LOSSES. The partnerships' income will not be treated as a "passive activity" for purposes of the limitation on the deduction of passive activity losses. 137 LIMITED DEDUCTION OF CERTAIN EXPENSES. Certain miscellaneous itemized deductions, such as expenses incurred to maintain property held for investment, are deductible only to the extent that they exceed 2% of the adjusted gross income of an individual, trust, or estate. The amount of certain itemized deductions allowable to individuals is further reduced by an amount equal to the lesser of (i) 3% of the individual's adjusted gross income in excess of a certain threshold amount and (ii) 80% of such itemized deductions. Moreover, such investment expenses are miscellaneous itemized deductions that are not deductible by a non-corporate taxpayer in calculating its alternative minimum tax liability. Based upon the current and contemplated activities of the partnerships, the general partner has been advised by its legal counsel that, in such counsel's opinion, the expenses incurred by the partnerships in their futures interests trading businesses should not be subject to the 2% "floor" or the 3% phaseout, except to the extent that the Internal Revenue Service promulgates regulations that so provide. However, that advice is not binding on a court or the Internal Revenue Service, and the Internal Revenue Service could assert, and a court could agree, that such expenses of the partnerships (including incentive fees) are investment expenses which are subject to these limitations. TAX LIABILITY WILL EXCEED DISTRIBUTIONS. Under federal tax laws, a limited partner must report and pay tax on his share of any partnership income each year, even though the general partner does not intend to make any distributions from the partnerships. TAX ON CAPITAL GAINS AND LOSSES. For individuals, trusts and estates, "long-term capital gains" are currently taxed at a maximum marginal tax rate of 20% and "short-term capital gains" and other income are taxed at a maximum marginal tax rate of 39.6%. Corporate taxpayers are currently subject to a maximum marginal tax rate of 35% on all capital gains and income. The excess of capital losses over capital gains is deductible by an individual against ordinary income on a one-for-one basis, subject to an annual limitation of $3,000 ($1,500 in the case of married individuals filing a separate return). Excess capital losses may be carried forward. Net losses from Section 1256 contracts are treated as 60% long-term capital loss and 40% short-term capital loss. Such losses may, at the individual taxpayer's election, be carried back to each of the preceding three years and applied against gains from Section 1256 contracts. ALTERNATIVE MINIMUM TAX. The alternative minimum tax for individuals is imposed on "alternative minimum taxable income" in excess of certain exemption amounts. Alternative minimum taxable income consists of taxable income determined with certain adjustments and increased by the amount of items of tax preference. Alternative minimum taxable income may not be offset by certain interest deductions, including (in certain circumstances) interest incurred to purchase or carry units in the partnerships. Corporations are also subject to an alternative minimum tax. The extent to which the alternative minimum tax will be imposed will depend on the overall tax situation of each limited partner at the end of such taxable year. LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT INDEBTEDNESS. Interest paid or accrued on indebtedness properly allocable to property held for investment is investment interest. Such interest is generally deductible by non-corporate taxpayers only to the extent it does not exceed net investment income. A limited partner's distributive share of net partnership income and any gain from the disposition of units will be treated as investment income, except that a limited partner's net capital gain from the disposition of units is not investment income unless the limited partner waives the benefit of the preferential tax rate on the gain. It is not clear whether a limited partner's distributive share of partnership net capital gain constitutes investment income where such gain is taxed at the maximum rate for capital gains. Interest expense incurred by a limited partner to acquire his units generally will be investment interest. Any investment interest disallowed as a deduction in a taxable year solely by reason of the limitation above is treated as investment interest paid or accrued in the succeeding taxable year. TAXATION OF FOREIGN LIMITED PARTNERS. A non-resident alien individual, foreign corporation, or foreign partnership not otherwise engaged in a U.S. trade or business or acting as a dealer in commodities should not be deemed to be engaged in a U.S. trade or business solely by virtue of an investment as a limited partner in the partnerships. Capital gains earned by the partnerships and allocated to such a foreign limited partner will, as a general rule, not be subject to U.S. federal income taxation or withholding, but may be subject to taxation by the jurisdiction in which the foreign limited partner is resident, organized, or operating. Interest income earned by the partnerships will, as a general rule, likewise not be subject to U.S. federal income tax or withholding, but may be subject to tax in other jurisdictions to which the 138 foreign limited partner is connected. Prospective foreign limited partners who are engaged in a U.S. trade or business or who act as dealers in commodities may be subject to U.S. income tax and should consult their tax advisors before investing in a partnership. The estate of a deceased foreign limited partner may be liable for U.S. estate tax and may be required to obtain an estate tax release from the Internal Revenue Service in order to transfer the units of such foreign limited partner. FOREIGN PERSONS SHOULD CONSULT THEIR OWN TAX ADVISERS BEFORE DECIDING WHETHER TO INVEST IN THE PARTNERSHIPS. TAX ELECTIONS. The Internal Revenue Code of 1986 provides for optional adjustments to the basis of partnership property upon distributions of partnership property to a partner (Section 734) and transfers of units, including transfers by reason of death (Section 743), provided that a partnership election has been made pursuant to Section 754. As a result of the complexities and added expense of the tax accounting required to implement such an election, the general partner does not presently intend to make such an election for any of the partnerships. Therefore, any benefits which might be available to the partners by reason of such an election will be foreclosed. TAX RETURNS AND INFORMATION. The partnerships will file their information returns using the accrual method of accounting. Within 75 days after the close of each partnership's taxable year, the partnership will furnish each limited partner, and any assignee of the units of a limited partner, copies of the partnership's Schedule K-1 indicating the limited partner's distributive share of tax items and any additional information as is reasonably necessary to permit the limited partners to prepare their own federal and state tax returns. PARTNERSHIP'S TAXABLE YEAR. Each partnership has the calendar year as its taxable year. UNRELATED BUSINESS TAXABLE INCOME OF EMPLOYEE BENEFIT PLAN LIMITED PARTNERS AND OTHER TAX-EXEMPT INVESTORS. Income allocated to a limited partner which is an employee benefit plan or other tax-exempt entity should not be subject to tax under Section 511 of the Internal Revenue Code of 1986, provided that the units purchased by such plans and entities are not "debt-financed." However, if a partnership were to purchase physical commodities with borrowed funds (whether upon delivery under a futures or forward contract or otherwise) and to sell those commodities at a gain, the gain would likely constitute unrelated business income. The partnerships are entitled to engage in such leveraged purchases of physical commodities. Tax exempt investors should see "Purchases by Employee Benefit Plans--ERISA Considerations." TAX AUDITS All partners are required under the Internal Revenue Code of 1986 to report all the partnership items on their own returns consistently with the treatment by the partnership, unless they file a statement with the Internal Revenue Service disclosing the inconsistencies. Adjustments in tax liability with respect to partnership items will be made at the partnership level. The general partner will represent each partnership during any audit and in any dispute with the Internal Revenue Service. Each limited partner will be informed by the general partner of the commencement of an audit of a partnership. In general, the general partner may enter into a settlement agreement with the Internal Revenue Service on behalf of, and binding upon, limited partners owning less than a 1% profits interest if the partnership has more than 100 partners. However, prior to settlement, such a limited partner may file a statement with the Internal Revenue Service stating that the general partner does not have the authority to settle on behalf of the limited partner. The period for assessing a deficiency against a partner in a partnership with respect to a partnership item is the later of three years after the partnership files its return or, if the name and address of the partner does not appear on the partnership return, one year after the Internal Revenue Service is furnished with the name and address of the partner. In addition, the general partner may consent on behalf of each 139 partnership to the extension of the period for assessing a deficiency with respect to a partnership item. As a result, a limited partner's federal income tax return may be subject to examination and adjustment by the Internal Revenue Service for a partnership item more than three years after it has been filed. ------------------- All of the foregoing statements are based upon the existing provisions of the Internal Revenue Code of 1986 and the regulations promulgated thereunder and the existing administrative and judicial interpretations thereof. The general partner cannot assure you that legislative, administrative, or judicial changes will not occur which will modify such statements. The foregoing statements are not intended as a substitute for careful tax planning, particularly since certain of the federal income tax consequences of purchasing units may not be the same for all taxpayers. The partnerships' tax returns could be audited by the Internal Revenue Service and adjustments to the returns could be made as a result of such audits. If an audit results in adjustment, limited partners may be required to file amended returns and their returns may be audited. Accordingly, prospective purchasers of units are urged to consult their tax advisers with specific reference to their own tax situation under federal law and the provisions of applicable state, local, and foreign laws before subscribing for units. STATE AND LOCAL INCOME TAX ASPECTS In addition to the federal income tax consequences for individuals described under "Material Federal Income Tax Considerations" above, the partnerships and their limited partners may be subject to various state and local taxes. Certain of these taxes could, if applicable, have a significant effect on the amount of tax payable in respect of an investment in the partnerships. A limited partner's distributive share of the realized profits of a partnership may be required to be included in determining his reportable income for state or local tax purposes. Furthermore, state and local tax laws may not reflect recent changes made to the federal income tax law and, therefore, may be inconsistent with the federal income treatment of gains and losses arising from the partnerships' transactions in Section 1256 contracts. Accordingly, prospective limited partners should consult with their own tax advisers concerning the applicability of state and local taxes to an investment in the partnerships. The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft, that in such counsel's opinion, the partnerships should not be liable for New York City unincorporated business tax. Limited partners who are nonresidents of New York State will not be liable for New York State personal income tax on such partners' income from the partnerships, but may be liable for such tax to the extent such limited partners' allocable share of income attributable to the partnerships' transactions involves tangible personal property. Likewise, limited partners who are nonresidents of New York City will not be liable for New York City earnings tax on the partners' income from the partnerships. New York City residents may be subject to New York City personal income tax on the partners' income from the partnerships. No ruling from the New York State Department of Taxation and Finance or the New York City Department of Finance has been, or will be, requested regarding such matters. LEGAL MATTERS Legal matters in connection with the units being offered hereby, including the discussion of the material federal income tax considerations relating to the acquisition, ownership and disposition of units, have been passed upon for each partnership and the general partner by Cadwalader, Wickersham & Taft, 100 Maiden Lane, New York, New York 10038. Cadwalader, Wickersham & Taft also has acted as counsel for Dean Witter in connection with the offering of units. Cadwalader, Wickersham & Taft may advise the general partner with respect to its responsibilities as general partner of, and with respect to matters relating to, the partnerships. EXPERTS The statements of financial condition of Morgan Stanley Dean Witter Spectrum Currency L.P. as of December 31, 2000 and of Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Technical L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., Morgan Stanley Dean Witter Spectrum Global Balanced L.P., and Morgan Stanley Dean Witter Spectrum Commodity L.P. (formerly named Morgan Stanley Tangible Asset Fund L.P.) as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' capital, and cash flows for the period from July 3, 2000 140 (commencement of operations) to December 31, 2000 for Spectrum Currency, for the period from January 2, 1998 (commencement of operations) to December 31, 1998 and the two years ended December 31, 2000 for Spectrum Commodity, and for each of the three years in the period ended December 31, 2000 for the other above mentioned partnerships, as well as the statements of financial condition of Demeter Management Corporation as of November 30, 2000 and 1999 included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and is included in reliance upon such report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP also acts as independent auditors for Morgan Stanley Dean Witter & Co. WHERE YOU CAN FIND MORE INFORMATION The partnerships filed registration statements relating to the units registered with SEC. This prospectus is part of the registration statements, but the registration statements include additional information. You may read any of the registration statements, or obtain copies by paying prescribed charges, at the SEC's public reference rooms located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. For further information on the public reference rooms, please call the SEC at 1-800-SEC-0330. The registration statements are also available to the public from the SEC's Web site at "http://www.sec.gov." 141 PART TWO STATEMENT OF ADDITIONAL INFORMATION THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF ADDITIONAL INFORMATION. THESE PARTS ARE BOUND TOGETHER AND MAY NOT BE DISTRIBUTED SEPARATELY. THE FUTURES, OPTIONS, AND FORWARDS MARKETS FUTURES CONTRACTS Futures contracts are standardized contracts made on a domestic or foreign exchange that call for the future delivery of specified quantities of various commodities at a specified price, time, and place. The following are some of the commodities traded on an exchange:
- - agricultural and tropical (soft) commodities - currencies - metals - - industrial goods - financial instruments - energy products
The futures markets have undergone dramatic changes during the past three decades. According to statistics provided by the Futures Industry Association, in 1980 and 2000 activity in futures markets was divided as follows:
1980 2000* ---- ----- % % Agricultural Products 64 Interest Rates 54 Metals 16 Stock Indices 17 Interest Rates 14 Energy Products 10 Currencies 5 Agricultural Products 9 Lumber and Energy Products 1 Metals 7 Currencies 3
- --------- *Data as of December 31, 2000. A market participant can make a futures contract to buy or sell a commodity. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of an approved grade of the commodity or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. For example, if we sell one contract of December 2001 wheat on a commodity exchange, we may fulfill the contract at any time prior to the December 2001 delivery date by purchasing one contract of December 2001 wheat on the same exchange. The difference between the price at which the futures contract is sold or purchased and the price paid for the offsetting purchase or sale, after allowance for brokerage commissions, constitutes the profit or loss to the trader. Certain futures contracts, such as those for stock or other financial or economic indices approved by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is made to offset such contracts) rather than delivery of any physical commodity. OPTIONS ON FUTURES An option on a futures contract or on a physical commodity gives the buyer of the option the right to take a position of a specified amount at a specified price of a specific commodity (the "striking," "strike," or "exercise" price) in the underlying futures contract or commodity. The buyer of a "call" option acquires the right to take a long position (I.E., the obligation to take delivery of a specified amount at a specified price of a specific commodity) in the underlying futures contract or commodity. 142 The buyer of a "put" option acquires the right to take a short position (I.E., the obligation to make delivery of a specified amount at a specified price of a specified commodity) in the underlying futures contract or commodity. The purchase price of an option is referred to as its "premium." The seller (or "writer") of an option is obligated to take a futures position at a specified price opposite to the option buyer if the option is exercised. Thus, the seller of a call option must stand ready to sell (take a short position in the underlying futures contract) at the striking price if the buyer should exercise the option. The seller of a put option, on the other hand, must stand ready to buy (take a long position in the underlying futures contract) at the striking price. A call option on a futures contract is said to be "in-the-money" if the striking price is below current market levels, and "out-of-the-money" if the striking price is above current market levels. Conversely, a put option on a futures contract is said to be "in-the-money" if the striking price is above current market levels, and "out-of-the-money" if the striking price is below current market levels. Options have limited life spans, usually tied to the delivery or settlement date of the underlying futures contract. An option that is out-of-the-money and not offset by the time it expires becomes worthless. Options usually trade at a premium above their intrinsic value (I.E., the difference between the market price for the underlying futures contract and the striking price), because the option trader is speculating on (or hedging against) future movements in the price of the underlying contract. As an option nears its expiration date, the market and intrinsic value typically move into parity. The difference between an option's intrinsic and market values is referred to as the "time value" of the option. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--OPTIONS TRADING CAN BE MORE VOLATILE THAN FUTURES TRADING" ON PAGE - . FORWARD CONTRACTS Contracts for the future delivery of certain commodities may also be made through banks or dealers pursuant to what are commonly referred to as "forward contracts." A forward contract is a contractual right to purchase or sell a specified quantity of a commodity at or before a specified date in the future at a specified price and, therefore, it is similar to a futures contract. In forward contract trading, a bank or dealer generally acts as principal in the transaction and includes its anticipated profit (the "spread" between the "bid" and the "asked" prices), and in some instances a mark-up, in the prices it quotes for forward contracts. Unlike futures contracts, forward contracts are not standardized contracts; rather, they are the subject of individual negotiation between the parties involved. Because there is no clearinghouse system applicable to forward contracts, forward contracts are not fungible, and there is no direct means of "offsetting" a forward contract by purchase of an offsetting position on the same exchange as one can a futures contract. In recent years, the terms of forward contracts have become more standardized and in some instances such contracts now provide a right of offset or cash settlement as an alternative to making delivery on the contract. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--THE UNREGULATED NATURE OF THE FORWARD MARKETS CREATES COUNTERPARTY RISKS THAT DO NOT EXIST IN FUTURES TRADING ON EXCHANGES" ON PAGE - . HEDGERS AND SPECULATORS The two broad classes of persons who trade futures interests contracts are "hedgers" and "speculators." Commercial interests, including farmers, that market or process commodities and financial institutions that market or deal in commodities, including interest rate sensitive instruments, foreign currencies, and stocks, which are exposed to currency, interest rate, and stock market risks, may use the futures markets for hedging. Hedging is a protective procedure designed to minimize losses that may occur because of price fluctuations occurring, for example, between the time a processor makes a contract to buy or sell a raw or processed commodity at a certain price and the time he must perform the contract. The futures markets enable the hedger to shift the risk of price fluctuations to the speculator. The speculator risks his capital with the hope of making profits from price fluctuations in futures, forwards, and options contracts. Speculators rarely take delivery of commodities, but rather close out their positions by entering into offsetting purchases or sales of futures, forwards, and options contracts. Since the speculator may take 143 either a long or short position in the futures, forwards, and options markets, it is possible for him to make profits or incur losses regardless of whether prices go up or down. The partnerships will trade for speculative rather than for hedging purposes. FUTURES EXCHANGES Futures exchanges provide centralized market facilities for trading futures contracts and options (but not forward contracts). Members of, and trades executed on, a particular exchange are subject to the rules of that exchange. Among the principal exchanges in the United States are the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, and the New York Board of Trade. Each futures exchange in the United States has an associated "clearinghouse." Once trades between members of an exchange have been confirmed, the clearinghouse becomes substituted for each buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party to each trader's open position in the market. Thereafter, each party to a trade looks only to the clearinghouse for performance. The clearinghouse generally establishes some sort of security or guarantee fund to which all clearing members of the exchange must contribute; this fund acts as an emergency buffer that enables the clearinghouse to meet its obligations with regard to the "other side" of an insolvent clearing member's contracts. Clearinghouses require margin deposits and continuously mark positions to market to provide some assurance that their members will be able to fulfill their contractual obligations. Thus, a central function of the clearinghouses is to ensure the integrity of trades, and members effecting futures transactions on an organized exchange need not worry about the solvency of the party on the opposite side of the trade; their only remaining concerns are the respective solvencies of their commodity broker and the clearinghouse. Foreign futures exchanges differ in certain respects from their U.S. counterparts. In contrast to United States exchanges, certain foreign exchanges are "principals' markets," where trades remain the liability of the traders involved, and the exchange does not become substituted for any party. SEE "REGULATIONS" BELOW AND "RISK FACTORS--TRADING AND PERFORMANCE RISKS--TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN TRADING ON U.S. EXCHANGES" ON PAGE - . SPECULATIVE POSITION LIMITS The CFTC and U.S. futures exchanges have established limits, referred to as "speculative position limits" or "position limits," on the maximum net long or net short speculative position that any person or group of persons (other than a hedger, which the partnerships are not) may hold, own or control in certain futures interests contracts. Among the purposes of speculative position limits is to prevent a "corner" on a market or undue influence on prices by any single trader or group of traders. The CFTC has jurisdiction to establish position limits with respect to all commodities and has established position limits for all agricultural commodities. In addition, the CFTC requires each United States exchange to submit position limits for all commodities traded on such exchange for approval by the CFTC. However, position limits do not apply to many currency futures contracts. Position limits do not apply to forward contract trading or generally to trading on foreign exchanges. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--THE PARTNERSHIPS ARE SUBJECT TO SPECULATIVE POSITION LIMITS" ON PAGE - . DAILY LIMITS Most United States futures exchanges (but generally not foreign exchanges or banks or dealers in the case of forward contracts) limit the amount of fluctuation in futures interests contract prices during a single trading day by regulation. These regulations specify what are referred to as "daily price fluctuation limits" or more commonly "daily limits." The daily limits establish the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price. Once the daily limit has been reached in a particular futures market, no trades may be made at a price beyond the limit. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--MARKET ILLIQUIDITY MAY CAUSE LESS FAVORABLE TRADE PRICES" ON PAGE - . 144 REGULATIONS Futures exchanges in the United States are subject to regulation under the Commodity Exchange Act by the CFTC, the governmental agency having responsibility for regulation of futures exchanges and trading on those exchanges. The CFTC also regulates the activities of "commodity trading advisors" and "commodity pool operators" and has adopted regulations with respect to certain of such persons' activities. The CFTC requires a commodity pool operator (such as the general partner) to keep accurate, current, and orderly records with respect to each pool it operates. The CFTC may suspend the registration of a commodity pool operator if the CFTC finds that the operator has violated the Commodity Exchange Act or regulations thereunder and in certain other circumstances. Suspension, restriction, or termination of the general partner's registration as a commodity pool operator would prevent it, until such time (if any) as such registration were to be reinstated, from managing, and might result in the termination of, the partnerships. The Commodity Exchange Act gives the CFTC similar authority with respect to the activities of commodity trading advisors, such as the trading advisors. If the registration of a trading advisor as a commodity trading advisor were to be terminated, restricted, or suspended, the trading advisor would be unable, until such time (if any) as such registration were to be reinstated, to render trading advice to the relevant partnership. The partnerships themselves are not registered with the CFTC in any capacity. The Commodity Exchange Act requires all "futures commission merchants," such as Dean Witter and Morgan Stanley, to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds and account separately for all customers' funds and positions, and to maintain specified books and records open to inspection by the staff of the CFTC. The partnerships have no present intention of using any introducing brokers in their trading. The Commodity Exchange Act also gives the states certain powers to enforce its provisions and the regulations of the CFTC. You are afforded certain rights for reparations under the Commodity Exchange Act. You may also be able to maintain a private right of action for certain violations of the Commodity Exchange Act. The CFTC has adopted rules implementing the reparation provisions of the Commodity Exchange Act which provide that any person may file a complaint for a reparations award with the CFTC for violation of the Commodity Exchange Act against a floor broker, futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, and their respective associated persons. Pursuant to authority in the Commodity Exchange Act, the National Futures Association has been formed and registered with the CFTC as a "registered futures association." At the present time, the National Futures Association is the only non-exchange self-regulatory organization for commodities professionals. National Futures Association members are subject to National Futures Association standards relating to fair trade practices, financial condition, and consumer protection. As the self-regulatory body of the commodities industry, the National Futures Association promulgates rules governing the conduct of commodity professionals and disciplines those professionals who do not comply with such standards. The CFTC has delegated to the National Futures Association responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers and their respective associated persons and floor brokers. Dean Witter, the general partner, Morgan Stanley, and the trading advisors are all members of the National Futures Association (the partnerships themselves are not required to become members of the National Futures Association). The CFTC has no authority to regulate trading on foreign commodity exchanges and markets. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN TRADING ON U.S. EXCHANGES" ON PAGE - . MARGINS "Initial" or "original" margin is the minimum amount of funds that a futures trader must deposit with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts. "Maintenance" margin is the amount (generally less than initial margin) to which a trader's account may decline before he must deliver additional margin. A margin deposit is like a cash performance bond. It helps assure the futures trader's performance of the futures contracts he purchases or 145 sells. Futures contracts are customarily bought and sold on margins that represent a very small percentage (ranging upward from less than 2%) of the purchase price of the underlying commodity being traded. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investment or speculation. The minimum amount of margin required in connection with a particular futures contract is set by the exchange on which such contract is traded, and may be modified from time to time by the exchange during the term of the contract. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--THE PARTNERSHIPS' TRADING IS HIGHLY LEVERAGED" ON PAGE - . Brokerage firms, such as Dean Witter, Morgan Stanley, and Morgan Stanley International, carrying accounts for traders in futures contracts may not accept lower, and generally require higher, amounts of margin as a matter of policy in order to afford further protection for themselves. The commodity brokers presently intend to require each partnership to make margin deposits equal to the exchange minimum levels for all futures contracts. Trading in the currency forward contract market does not require margin, but generally does require the extension of credit by a bank or dealer to those with whom the bank or dealer trades. Since each partnership's trading will be conducted through a commodity broker, each partnership will be able to take advantage of the commodity brokers' credit lines with several participants in the interbank market. The commodity brokers will require margin with respect to a partnership's trading of currency forward contracts. Margin requirements are computed each day by a trader's commodity broker. When the market value of a particular open futures contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If the margin call is not met within a reasonable time, the broker may close out the trader's position. With respect to a partnership's trading, that partnership, and not its limited partners personally or any other partnership, will be subject to margin calls. POTENTIAL ADVANTAGES Developing a comprehensive financial plan entails evaluating options and acting upon those options. In this fast-paced and ever-changing financial environment, selecting from the broad array of investments available can be difficult and time-consuming. Astute investors often turn to professional money managers for the expertise and guidance needed to map out a successful investment strategy. Morgan Stanley Dean Witter & Co., a global leader in financial management, has developed the Spectrum Series of partnerships to provide professional money management in the futures, forwards, and options markets. An investment in a partnership is speculative and involves a high degree of risk. The general partner and Dean Witter believe that managed futures investments (such as the partnerships) can provide you with the potential for long-term capital appreciation (with commensurate risk), but are appropriate only for the aggressive growth portion of your comprehensive financial plan. SEE "RISK FACTORS" BEGINNING ON PAGE - . Taking the risks into consideration, this investment does offer the following potential advantages. INVESTMENT DIVERSIFICATION If you are not prepared to make a significant investment or spend substantial time trading various futures, forwards, and options, you may still participate in these markets through an investment in a Spectrum Series partnership, obtaining diversification from more traditional investments in stocks, bonds, and real estate. The general partner believes, on the basis of the past experience of the partnerships, that the profit potential of a partnership does not depend upon favorable general economic conditions, and that a partnership is as likely to be profitable during periods of declining stock, bond, and real estate markets as at any other time; conversely, a partnership may be unprofitable during periods of generally favorable economic conditions. Managed futures investments can serve to diversify your portfolio and smooth overall portfolio volatility. Modern Portfolio Theory is the academic affirmation of the value of diversification. Modern Portfolio Theory was developed in the 1950s by Nobel Laureates William Sharpe and Harold Markowitz. These two pioneers developed a framework for efficiently diversifying assets within a portfolio. They suggested that investing in any asset class with positive returns and low correlation to other assets 146 improves the overall risk/reward characteristics of the entire portfolio. In 1983, Dr. John H. Lintner of Harvard University focused on the concepts of Modern Portfolio Theory in a study about portfolio diversification. Specifically, Modern Portfolio Theory was utilized to evaluate the addition of a managed futures component to a diversified portfolio comprised of 60% stocks and 40% bonds. The results of Lintner's work demonstrated that by including a variety of assets, such as commodities, in a hypothetical portfolio, an investor may lower the portfolio's overall volatility or risk. Lintner's findings were further supported by the works of Dr. Thomas Schneeweis of the University of Massachusetts, Amherst, in his 1999 study, "The Benefits of Managed Futures." Dr. Schneeweis concluded that "while ... the correlation between managed futures and most traditional investments is approximately zero, when asset returns are segmented according to whether the traditional asset rose or fell, managed futures are often negatively correlated in months when traditional asset returns are negative while being positively correlated when traditional asset returns are positive." The partnerships' combined benefits of growth potential (with commensurate risk) and diversification can potentially reduce the overall volatility of your portfolio, while increasing profits. By combining asset classes, you may create a portfolio mix that provides the potential to offer the greatest possible return within acceptable levels of volatility. While past performance is no guarantee of future results, managed futures investments, such as the partnerships, may profit (with commensurate risk) from futures interests market moves, with the potential to enhance your overall portfolio. The trading advisors' speculative trading techniques will be the primary factor in the partnerships' success or failure. You should note that there are always two parties to a futures, forward, or option contract; consequently, for any gain achieved by one party on a contract, a corresponding loss is suffered. Therefore, due to the nature of futures, forwards, and options trading, only 50% of contract interests held by all market participants can experience gain at any one time. Brokerage commissions and other costs of trading may reduce or eliminate any gain that would otherwise be achieved. The first step toward a sound financial future is to establish your investment objectives. Based on your financial goals, requirements, and investment preferences, your Morgan Stanley Dean Witter financial advisor can help you determine the combination of asset classes as well as the type of trading advisor(s) that most suits your investment profile. Asset allocation is the next critical step to help you achieve your investment objectives. Asset allocation refers to the division of investment dollars over a variety of asset classes in order to reduce overall volatility through portfolio diversification, while increasing the long-term performance potential of an investment portfolio. A fully diversified portfolio should contain cash, income, growth and aggressive growth investments. Managed futures investments are designed to fit into a total financial plan as aggressive growth vehicles with the potential for long-term capital appreciation (with commensurate risk). As part of a well-balanced and fully diversified portfolio, managed futures can offer significant benefits. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AGGRESSIVE GROWTH GROWTH INCOME CASH & EQUIVALENTS STOCKS 60% MANAGED FUTURES 10% CASH 5% BONDS 25%
147 The table below is an empirical example of how different assets can react to business cycles. In each case, the asset class is represented by a recognized industry index for that asset. ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME
U.S. TREASURY PUBLIC U.S. BONDS (LEHMAN U.S. CORPORATE NON-U.S. MANAGED MANAGED STOCKS BROTHERS BONDS STOCKS GLOBAL STOCKS FUTURES FUTURES FUNDS (S&P 500 TREASURY (SALOMON C DEG.ORP. (MSCI EAFE (MSCI WORLD (BARCLAY (MAR PUBLIC INDEX) BOND INDEX) BOND INDEX) INDEX) INDEX) CTA INDEX) FUND INDEX) -------- ------------- ------------------- ----------- ------------- ---------- ------------- % % % % % % % 1980...... 32.5 N/A (2.7) 24.4 27.7 63.7 N/A 1981...... (4.9) 1.1 (1.2) (1.0) (3.3) 23.9 N/A 1982...... 21.5 41.1 42.5 (0.8) 11.3 16.7 N/A 1983...... 22.6 1.8 6.3 24.6 23.3 23.8 N/A 1984...... 6.3 14.7 16.9 7.9 5.8 8.7 1.4 1985...... 31.7 32.0 30.1 56.7 41.8 25.5 21.9 1986...... 18.7 24.2 19.9 69.9 42.8 3.8 (14.4) 1987...... 5.3 (2.7) (0.3) 24.9 16.8 57.3 43.1 1988...... 16.6 9.1 10.7 28.6 23.9 21.8 7.3 1989...... 31.7 18.9 16.2 10.8 17.2 1.8 4.7 1990...... (3.1) 4.6 6.8 (23.2) (16.5) 21.0 14.2 1991...... 30.5 17.9 19.9 12.5 19.0 3.7 10.0 1992...... 7.6 7.8 9.4 (11.8) (4.7) (0.9) (1.4) 1993...... 10.1 16.4 13.2 32.9 23.1 10.4 10.7 1994...... 1.3 (6.9) (5.8) 8.1 5.6 (0.7) (7.7) 1995...... 37.6 30.7 27.2 11.6 21.3 13.7 13.9 1996...... 23.0 (0.4) 1.3 6.4 14.0 9.1 9.8 1997...... 33.4 14.9 11.6 2.1 16.2 10.9 7.6 1998...... 28.6 13.5 12.5 20.3 24.8 7.0 7.9 1999...... 21.0 (8.7) (6.6) 27.3 25.3 (1.2) (1.4) 2000...... (9.1) 20.1 10.7 (14.0) (12.9) 7.9 4.7
- --------- * Through December 31, 2000 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. NOTES TO "ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME" TABLE: For the analyses used in this table, the performance of independent indices has been used to represent seven asset classes: U.S. stocks, U.S. Treasury bonds, U.S. corporate bonds, international stocks, global stocks, managed futures, and public managed futures funds. The respective indices used are the Standard and Poor's 500 Stock Index, the Lehman Brothers Treasury Bond Index, the Salomon Corporate Bond Index, the Morgan Stanley Capital International ("MSCI") EAFE Index, the MSCI World Index, the Barclay CTA Index, and the Managed Account Reports Public Fund Index. The S&P 500 Index and the Salomon Corporate Bond Index are compiled assuming dividends and interest are re-invested. The S&P 500 Index is based on a portfolio of 500 stocks (consisting of 400 industrials, 40 utilities, 20 transportations, and 40 financials). The weights of the stocks in the portfolio at a given time reflect the stocks' total market capitalization. The S&P 500 Index accounts for approximately 80% of the market capitalization of all stocks listed on the New York Stock Exchange. The Lehman Brothers Treasury Bond Index consists of all existing U.S. Treasury bond issues. The Salomon Corporate Bond Index is a benchmark of investment grade fixed rate corporate issues with maturities of at least one year and in minimum outstanding amounts of $100 million. The corporate issues encompass such industry sectors as Manufacturing, Service, Energy, Consumer, Transportation, Industrial-Other, Utility, and Finance. 148 The MSCI EAFE Index is comprised of 1,098 companies, representing a market structure of 21 European and Pacific based countries covering 38 industries. The index is used to represent international equities. The MSCI World Index is comprised of 1,456 companies, representing a market structure of 22 countries around the world. The index is used to represent global equities, including U.S. and Canadian markets. The Barclay CTA Index provides a benchmark of performance of commodity trading advisors. In order to qualify for inclusion in the Barclay CTA Index, a commodity trading advisor must meet the following criteria: (1) the commodity trading advisor must have four years of prior performance history; and (2) in cases where a commodity trading advisor who is in the Barclay CTA Index introduces an additional program, this additional program is added to the Index only after its second year of trading. In 2000, there are 345 commodity trading advisor programs which were included in the calculation of the Barclay CTA Index. The MAR Index averages managed futures fund performance for public funds. MAR indices are dollar, or equity, weighted to reflect performance. To qualify for inclusion in MAR's fund indices, an investment product must appear in MAR's fund performance tables. MAR imposes no minimum size restriction on the funds and/or pools that it tracks. As of December 31, 2000, there were 62 public funds included in the calculation of the MAR Index. The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Thomson Financial Software Solutions, Boston, MA. The MSCI World Index performance data for global stocks are provided by Morgan Stanley Capital International Inc., New York, NY. The Lehman Brothers Treasury Bond Index and the Barclay CTA Index performance data for U.S. Treasury bonds and managed futures, respectively, are provided by the Barclay Trading Group Ltd., Fairfield, IA. The MAR Index performance data for public managed futures funds was provided by Managed Account Reports, Inc., New York, NY. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index and the MAR Index reflect results net of actual fees and expenses, the Barclay CTA Index includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships), and the MAR Index includes funds with trading advisors and fee structures that differ from the partnerships. Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index and the public managed futures funds included in the MAR Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, and the MAR Index is believed to be representative of public managed futures funds in general, the performance of the partnerships may differ from the performance reflected in such indices. CORRELATION TO TRADITIONAL INVESTMENTS Managed futures have historically demonstrated the ability to perform independently of traditional investments, such as stocks and bonds. This is referred to as non-correlation, or the potential for managed futures to perform when traditional markets such as stocks and bonds may experience difficulty performing. Of course, managed futures funds will not automatically be profitable during unfavorable periods for these traditional investments, and vice versa. The degree of non-correlation of any given managed futures fund will vary, particularly as a result of market conditions, and some funds will have a significantly lesser degree of non-correlation (I.E., greater correlation) with stocks and bonds than others. Spectrum Global Balanced, a fund whose trading strategy is to offer a balanced portfolio through exposure to the stock and bond markets in addition to the futures markets, should be distinguished from other managed futures funds. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Dean Witter offers. The factors that influence the stock and bond markets can affect the futures markets in different ways and to varying degrees. In this connection, an article in the June 8, 1998 issue of BUSINESS WEEK, "Commodities are Cheap--Time to Leap?" discusses the risks and potential rewards of investing in managed futures funds, noting the low correlation of their performance to stocks and bonds. 149 The following charts were prepared by the general partner to illustrate the correlation of the performance results of each partnership to that of the S & P 500 Index and the Salomon Corporate Bond Index. A pro forma of the trading program for Spectrum Currency was used rather than the actual performance results of the partnership because of that partnership's limited operating history. The performance results of the pro forma used for Spectrum Currency were based on the performance results of Cornerstone IV, which is another currency-only fund operated by the general partner and traded by JWH and Sunrise, the same trading advisors that trade for Spectrum Currency. The pro forma reflects adjustments made for the leverage employed by each trading advisor, and for the actual interest income, brokerage, management, and incentive fees payable by Spectrum Currency. Investors are cautioned that the performance information set forth in the following charts is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by a partnership in the future. [CHART] Data: 113 months of trading from August 1991 through December 2000 Monthly returns for the S&P 500 Index and the Salomon Corporate Bond Index are provided by Thomson Financial Software Solutions (Boston, MA). [CHART] Data: 74 months of trading from November 1994 through December 2000 Monthly returns for the S&P 500 Index and the Salomon Corporate Bond Index are provided by Thomson Financial Software Solutions (Boston, MA). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 150 [CHART] Data: 74 months of trading from November 1994 through December 2000 Monthly returns for the S&P 500 Index and the Salomon Corporate Bond Index are provided by Thomson Financial Software Solutions (Boston, MA). [CHART] Data: 74 months of trading from November 1994 through December 2000 *During one month the monthly returns of Spectrum Global Balanced and the Salomon Corporate Bond Index were both unchanged. Monthly returns for the S&P 500 Index and the Salomon Corporate Bond Index are provided by Thomson Financial Software Solutions (Boston, MA). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 151 [CHART] Data: 164 months of trading from May 1987 through December 2000 Monthly returns for the S&P 500 Index and the Salomon Corporate Bond Index are provided by Thomson Financial Software Solutions (Boston, MA). [CHART] Data: 36 months of trading from January 1998 through December 2000 Monthly returns for the S&P 500 Index and the Salomon Corporate Bond Index are provided by Thomson Financial Software Solutions (Boston, MA). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 152 The following chart was prepared by the general partner to illustrate the performance of managed futures against that of stocks from January 1980 through December 31, 2000, using the recognized market indices of each asset. The Notes on the next page are an integral part of the following chart. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC MANAGED FUTURES VS. STOCKS 12-Month Holding Period Performance RATES OF RETURN
MANAGED FUTURES STOCKS BARCLAY'S CYA INDEX S&P 500 INDEX (BARCLAY TRADING GROUP, FAIRFIELD, IA) (THOMSON FINANCIAL SOFTWARE SOLUTIONS, BOSTON, MA) DEC 80 32.52% 63.69% JAN 81 19.54% 33.28% FEB 81 21.57% 32.46% MAR 81 40.01% 21.79% Apr 81 31.31% 25.96% May 81 25.32% 26.06% Jun 81 20.70% 42.46% Jul 81 13.03% 24.34% Aug 81 5.42% 26.94% Sep 81 -2.57% 22.86% Oct 81 0.68% 18.68% Nov 81 -5.32% 26.96% Dec 81 -4.93% 23.90% Jan 82 -2.06% 19.68% Feb 82 -9.09% 22.38% Mar 82 -13.02% 36.81% Apr 82 -7.35% 34.16% May 82 -10.76% 33.64% Jun 82 -11.57% 22.58% Jul 82 -13.34% 14.52% Aug 82 3.13% 15.91% Sep 82 9.75% 30.14% Oct 82 16.10% 29.02% Nov 82 15.99% 14.97% Dec 82 21.34% 16.68% Jan 83 27.49% 35.84% Feb 83 38.16% 19.89% Mar 83 43.99% 13.97% Apr 83 48.68% 13.88% May 83 52.53% 21.23% Jun 83 60.89% 3.85% Jul 83 58.92% 17.83% Aug 83 43.89% 23.21% Sep 83 44.18% 12.85% Oct 83 27.76% 18.58% Nov 83 25.42% 19.50% Dec 83 22.47% 23.75% Jan 84 17.39% 6.22% Feb 84 10.73% 15.67% Mar 84 8.60% 15.59% Apr 84 1.55% 13.59% May 84 -3.16% 7.70% Jun 84 -4.74% 6.16% Jul 84 -2.98% 24.90% Aug 84 6.10% 5.36% Sep 84 4.64% 9.35% Oct 84 6.33% 2.87% Nov 84 3.00% 4.15% Dec 84 6.21% 8.74% Jan 85 15.19% 9.78% Feb 85 20.80% 16.02% Mar 85 18.90% 12.57% Apr 85 17.72% 13.21% May 85 31.79% 10.18% Jun 85 31.02% 16.27% Jul 85 32.48% 9.21% Aug 85 18.28% 16.78% Sep 85 14.61% 3.67% Oct 85 19.40% 15.37% Nov 85 29.06% 24.49% Dec 85 31.83% 25.50% Jan 86 23.02% 24.64% Feb 86 30.68% 35.92% Mar 86 37.86% 45.10% Apr 86 36.48% 38.81% May 86 35.84% 31.60% Jun 86 35.97% 36.26% Jul 86 28.49% 23.46% Aug 86 39.25% 31.90% Sep 86 31.77% 34.95% Oct 86 33.29% 21.01% Nov 86 27.68% 13.05% Dec 86 18.66% 3.82% Jan 87 33.88% 12.63% Feb 87 29.52% -0.72% Mar 87 26.21% -2.84% Apr 87 26.46% 26.48% May 87 21.18% 29.26% Jun 87 25.11% 26.93% Jul 87 39.29% 28.75% Aug 87 34.49% 20.42% Sep 87 43.44% 28.42% Oct 87 6.43% 34.78% Nov 87 -4.59% 49.66% Dec 87 5.40% 57.27% Jan 88 -3.24% 39.63% Feb 88 -2.58% 39.76% Mar 88 -8.26% 30.57% Apr 88 -6.41% 2.74% May 88 -6.41% 13.99% Jun 88 -6.77% 50.09% Jul 88 -11.65% 31.52% Aug 88 -17.70% 34.50% Sep 88 -12.23% 34.61% Oct 88 14.94% 36.00% Nov 88 23.46% 28.51% Dec 88 16.69% 21.76% Jan 89 20.16% 25.93% Feb 89 11.90% 20.71% Mar 89 18.13% 29.56% Apr 89 22.92% 31.52% May 89 26.70% 35.10% Jun 89 20.40% 7.40% Jul 89 31.76% 15.00% Aug 89 39.13% 7.71% Sep 89 32.86% 3.61% Oct 89 26.27% -3.91% Nov 89 30.62% -4.21% Dec 89 31.52% 1.80% Jan 90 14.36% 1.86% Feb 90 18.82% 6.36% Mar 90 19.17% 5.71% Apr 90 10.44% 13.34% May 90 16.60% -4.29% Jun 90 16.49% -4.34% Jul 90 6.55% 2.83% Aug 90 -4.94% 16.50% Sep 90 -9.24% 23.49% Oct 90 -7.47% 32.87% Nov 90 -3.39% 29.27% Dec 90 -3.01% 21.02% 1/91 8.53% 13.35% 2/91 14.85% 11.53% 3/91 14.62% 12.89% 4/91 17.80% 5.95% May 91 11.90% 10.30% Jun 91 7.50% 11.85% Jul 91 12.89% 2.34% Aug 91 27.04% -5.91% Sep 91 31.31% -5.97% Oct 91 33.55% -7.88% Nov 91 20.38% -7.21% Dec 91 30.46% 3.73% 1/92 22.58% 4.13% 2/92 15.84% 2.26% 3/92 10.97% -3.71% 4/92 13.96% -2.64% 5/92 9.81% -1.77% 6/92 13.38% -0.07% 7/92 12.73% 7.86% 8/92 7.89% 12.50% 9/92 11.07% 7.76% 10/92 9.97% 8.96% 11/92 18.45% 9.97% 12/92 7.60% -0.91% 1/93 10.56% 1.91% 2/93 10.67% 10.36% 3/93 15.19% 11.84% 4/93 9.25% 16.34% 5/93 11.65% 17.93% 6/93 13.69% 14.02% 7/93 8.77% 13.36% 8/93 15.21% 7.37% 9/93 12.93% 8.20% 10/93 14.96% 7.37% 11/93 10.07% 6.26% 12/93 10.07% 10.37% 1/94 12.91% 8.69% 2/94 8.34% 1.57% 3/94 1.44% 4.16% 4/94 5.29% -0.86% 5/94 4.16% 1.27% 6/94 1.25% 2.79% 7/94 5.01% -1.92% 8/94 5.32% -1.92% 9/94 3.62% 0.59% 10/94 3.72% 1.25% 11/94 1.00% 2.80% 12/94 1.30% -0.65% 1/95 0.51% 0.90% 2/95 7.33% 5.85% 3/95 15.64% 10.41% 4/95 17.47% 13.71% 5/95 20.24% 11.20% 6/95 26.16% 7.09% 7/95 26.16% 6.88% 8/95 21.55% 12.88% 9/95 29.77% 10.86% 10/95 26.47% 10.74% 11/95 36.97% 10.05% 12/95 37.51% 13.64% Jan 96 38.58% 18.77% Feb 96 34.58% 9.38% Mar 96 31.97% 3.39% Apr 96 30.17% 8.28% May 96 28.42% 5.62% Jun 96 26.03% 6.63% Jul 96 16.64% 6.19% Aug 96 18.73% 2.92% Sep 96 20.33% 5.35% Oct 96 24.19% 11.17% Nov 96 28.00% 13.84% Dec 96 23.10% 9.12% Jan 97 26.43% 10.42% Feb 97 26.31% 20.00% Mar 97 19.93% 18.59% Apr 97 25.25% 10.37% May 97 29.52% 12.94% Jun 97 34.81% 13.43% Jul 97 52.30% 21.88% Aug 97 40.81% 17.97% Sep 97 40.68% 16.58% Oct 97 32.33% 8.74% Nov 97 28.64% 6.59% Dec 97 33.50% 10.89% Jan 98 27.09% 7.39% Feb 98 35.15% 2.74% Mar 98 48.12% 3.91% Apr 98 41.13% 1.79% May 98 30.76% 2.24% Jun 98 30.26% 2.52% Jul 98 19.28% -3.28% Aug 98 8.04% 6.72% Sep 98 8.96% 8.99% Oct 98 21.80% 9.93% Nov 98 23.55% 7.38% Dec 98 28.53% 7.01% Jan 99 32.47% 4.79% Feb 99 19.74% 8.61% Mar 99 18.49% 6.71% Apr 99 21.89% 12.46% May 99 21.02% 10.01% Jun 99 22.65% 11.32% Jul 99 20.17% 11.06% Aug 99 39.85% 4.52% Sep 99 27.89% 1.37% Oct 99 25.76% -2.17% Nov 99 20.90% 0.69% Dec 99 21.01% -1.19% Jan 00 10.33% 1.73% Feb 00 11.69% -1.30% Mar 00 17.92% -0.91% Apr 00 10.09% -4.24% May 00 10.43% -2.07% Jun 00 7.29% -4.48% Jul 00 8.95% -5.14% Aug 00 16.29% -2.40% Sep 00 13.18% -3.90% Oct 00 6.05% 1.21% Nov 00 -4.25% 1.98% Dec 00 -9.13% 7.86%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 153 NOTES TO "MANAGED FUTURES VS. STOCKS" TABLE: Stocks are represented by the S&P 500 Index, provided by Thomson Financial Software Solutions, Boston, MA; managed futures are represented by the Barclay CTA Index, provided by Barclay Trading Group Ltd., Fairfield, IA. Each bar represents the asset class performance derived from successive 12-month hypothetical holding periods or windows. (A 12-month holding period is defined as a period of 12 consecutive months, E.G., from January 1989 to December 1989; the next would be from February 1989 to January 1990, etc.) Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. By overlaying returns, investors can see the potential benefits of a diversified portfolio that includes both traditional and alternative investments. There are many times when both the managed futures and stock indices showed positive performance. Obviously, though, there is no investment that only appreciates. There are 29 periods when managed futures showed negative returns, while stocks experienced 30 periods of negative returns during the studied time frame. While not a guarantee of future results, this chart provides a clear indication of the non-correlated aspect of managed futures. This non- correlation enables investors with managed futures to potentially lower the overall volatility of their portfolios. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. ------------------- The following chart was prepared by the general partner to illustrate the risk/return characteristics of a portfolio consisting of different combinations of domestic stocks, corporate bonds, international equities and/or managed futures, based on the performance of recognized market indices of each asset over the period January 1980--December 31, 2000. The Notes on the next page are an integral part of the following chart. IMPROVED PORTFOLIO EFFICIENCY JANUARY 1980 THROUGH DECEMBER 2000 U.S. STOCKS/BONDS/INTERNATIONAL EQUITIES/MANAGED FUTURES EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
STANDARD DEVIATION OF MONTHLY RETURNS AVERAGE MONTHLY RETURN 100% Stocks (S&P 500 Index) 4.36% 1.37% 100% Bonds (Salomon Corporate Bond Index) 2.81% 0.89% 100% International Equities (MSCI EAFE Index) 5.00% 1.16% 100% Managed Futures (Barclay CTA Index) 5.15% 1.26% 50% Stocks/50% Bonds 2.96% 1.13% 50% Stocks/30% Bonds/10% Int'l Eqs./10% Mgd. Futures 2.92% 1.20% 50% Stocks/40% Bonds/10% Mgd. Futures 2.82% 1.17% 60% Stocks/40% Bonds 3.17% 1.18% 60% Stocks/30% Bonds/10% Mgd. Futures 3.06% 1.22% 70% Stocks/30% Bonds 3.43% 1.23% 70% Stocks/20% Bonds/10% Mgd. Futures 3.34% 1.26%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 154 NOTES TO "IMPROVED PORTFOLIO EFFICIENCY" TABLE ON PRIOR PAGE: Stocks are represented by the S&P 500 Index, corporate bonds are represented by the Salomon Corporate Bond Index, and international equities are represented by the MSCI EAFE Index, each provided by Thomson Financial Software Solutions, Boston, MA; managed futures are represented by the Barclay CTA Index, provided by the Barclay Trading Group Ltd., Fairfield, IA. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. ------------------- PROFESSIONAL MANAGEMENT Professional money management is one of the most significant benefits a managed futures investment can offer. A professional trading advisor has several advantages over an individual investor. - CAPITALIZATION --Trading advisors are well capitalized, and capable of managing market volatility. - DISCIPLINE --Trading advisors employ established, disciplined approaches to futures trading, as well as strict money management policies and techniques. - PLANNED STRATEGY --Trading advisors research and design trading strategies that seek to provide long-term profit potential. - RISK CONTROL --Trading advisors offer a full time commitment to risk control, based upon calculated risk management strategies and years of research and experience. - RESEARCH AND DEVELOPMENT --Trading advisors are committed to ongoing research and development, in an effort to continuously improve upon existing systems and technology in order to keep pace with industry developments and potentially capitalize on market opportunities as they occur. In considering the advantages of utilizing a professional trading advisor, you also should consider the fees a trading advisor will be paid to manage a partnership's account. Depending on the partnership, the annual management fees range from 1.25% to 4.0% of the average month-end net assets of a partnership managed by the trading advisor, and incentive fees range from 15.0% to 20.0% of trading profits. THE TRADING ADVISOR SELECTION PROCESS Each of the trading advisors for the partnerships was chosen by the general partner based upon a strict selection process, including such criteria as performance history, experience, personnel, and due diligence. The performance history and trading experience of the trading advisors chosen for the partnerships span a range of eight to twenty-three years, and each trading advisor employs experienced personnel. Additionally, the general partner monitors daily each trading advisor's activities on behalf of a partnership and periodically conducts on-site due diligence visits to remain abreast of each trading advisor's continuing efforts toward research and development. This selection process is described below. In order for a trading advisor to be selected by the general partner, a qualitative and quantitative due diligence process is undertaken, considering the factors described below. The general partner's primary objective in the selection process is to allocate assets to trading advisors with well-established performance histories and whom it believes have the potential to continue to be successful in the future. Monitoring is an important second phase in the due diligence process. The general partner has invested significant resources into its proprietary Fund Management System, a comprehensive computerized management system. This sophisticated system produces daily control reports generated from actual trading data and enables the general partner to closely monitor the activity and performance of trading advisors relative to their historical profile. 155 Monitoring also occurs on a periodic basis by discussing with the trading advisors their performance relative to profile and peer trading advisors, recent market conditions, and trading opportunities. Ongoing research and development and continued on-site due diligence visits are conducted. While the due diligence process cannot guarantee future success, the general partner believes the process can provide the basis for sound decision-making and can increase the potential for future success. TRADING ADVISOR EVALUATION AND SELECTION Screening Trading advisors are screened from a pool of approximately 400. Evaluation Trading advisors are categorized and evaluated based on quantitative and qualitative factors. Selection Trading advisors are selected based on quantitative and qualitative analysis. Monitoring Daily and periodic monitoring and reporting takes place on an ongoing basis.
Trading advisors are analyzed by a combination of quantitative measures and qualitative factors, including: QUANTITATIVE MEASURES - Review of historic performance returns - Review of performance versus managed futures industry - Review of risk, including standard deviation of monthly returns and worst decline periods - Scrutiny of performance in key periods - Leverage policies of trading advisors - Correlation analysis of trading advisor returns versus managed futures industry indices and other asset class indices QUALITATIVE FACTORS - Experience of staff responsible for development and management of trading approach - Development of trading advisor's profile - Consistency of trading approach - On-site office visit to trading advisor headquarters - Ongoing commitment to research and development - Flexibility to expand in order to meet demands of growth in assets FUTURES, FORWARDS, AND OPTIONS TRADED Adding managed futures investments to a traditional portfolio of stocks and bonds can provide qualified investors with access to major world economic markets. At any given time, managed futures investments can participate in a broad array of markets, selected from among approximately 75 global futures and forward markets on approximately 20 exchanges worldwide.
PARTICIPATION IN APPROXIMATELY 75 MARKETS WORLDWIDE PLUS ENERGIES, AGRICULTURALS, AND METALS UNITED STATES UNITED KINGDOM FRANCE GERMANY - --------------------- -------------- ------ ------- Bonds, Bills, & Notes Long Gilt Notional Bond Bund Dollar Short Sterling Pibor Mark S&P 500 Pound Franc DAX FT-SE 100 CAC 40
RUSSIA CHINA JAPAN AUSTRALIA - ------ ----- ----- --------- Ruble Hang Seng Index Government Bonds 3-year & 10-year bonds Yen Dollar Nikkei 225 All Ordinaries Index
156
MAJOR FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS FOREIGN EXCHANGE STOCK INDICES INTEREST RATES - ------------- ---------------- ------------- -------------- Azuki (R. Beans) Australian dollar ASE All Australian bonds Corn Brazilian real Ordinaries British bonds Feeder cattle British pound CAC 40 Canadian bonds Lean hogs Canadian dollar DAX Euro bonds Live cattle Czech koruna Dow Jones Eurodollar Oats Danish kroner Industrial French bonds Pork bellies Euro E-mini S&P German bonds Soybean meal French franc Industrial Italian bonds Soybean oil German mark FT-SE 100 Japanese bonds Soybeans Greek drachma Hang Seng Mexican bonds Wheat Hong Kong dollar IBEX-35 Plus New Zealand bonds Japanese yen Mexican IPC Spanish bonds Korean won MIB 30 Swiss bonds Mexican peso NASDAQ 100 U.S. Treasury bonds New Zealand dollar Nikkei 225 U.S. Treasury notes Norwegian krone NYSE Composite Singapore dollar OMX South African rand Russell 1000 Spanish peseta S&P 500 Swedish krona Swedish Swiss franc Taiwan Thai baht Topix U.S. dollar Toronto METALS SOFTS ENERGIES - ------ ----- -------- Aluminum Cocoa Brent crude oil Copper Coffee Crude oil Gold Cotton Gas oil Lead Lumber Heating oil Nickel Orange juice Natural gas Palladium Rubber Unleaded gas Platinum Sugar Silver Tin Zinc
Each partnership normally trades a portfolio of diverse futures, forwards, and options, but may trade a greater or lesser number of futures interest from time to time. Each limited partner will obtain greater diversification in futures, forwards, and options traded than would be possible trading individually, unless substantially more than the minimum investment described herein were committed to the futures, forwards, and options markets. EXCHANGE RIGHT At the sixth month-end after a person first becomes a limited partner in any of the Spectrum Series partnerships, and each calendar month thereafter, a limited partner may shift his investment among the partnerships. This permits a limited partner to select one or more partnerships which best suit his investment needs and objectives, which may change from time to time. A limited partner is not required to pay any redemption charges in connection with a Spectrum Series exchange. DIVERSIFIED PROFESSIONAL TRADING MANAGEMENT Trading decisions for each partnership will be made by trading advisors retained by the general partner. The trading approaches employed on behalf of each partnership by its trading advisors are not 157 available for investments as small as the required minimum investment in each partnership. A limited partner's investment in each partnership is allocated among the trading advisors for such partnership. This permits a limited partner to receive the benefits from different trading systems being employed by such partnership. A limited partner can further diversify his professional trading management by dividing his investment among one or more of the partnerships. For example, an investor owning units of all six partnerships in the Spectrum Series would have the benefit of having his investment managed by twelve trading advisors. LIMITED LIABILITY Unlike an individual who invests directly in futures, forwards, and options, an investor in a partnership cannot be individually subject to margin calls and cannot lose more than the amount of his unredeemed capital contribution, his share of undistributed profits, if any, and, under certain circumstances, any distributions and amounts received upon redemption, or deemed received on an exchange of units, and interest thereon. INTEREST INCOME Many commodity brokers permit accounts above a certain size to deposit margin for futures, forwards, and options in the form of interest-bearing obligations, such as U.S. Treasury bills, rather than cash, thus enabling the account to earn interest on funds being used for futures trading, or such brokers pay interest at U.S. Treasury bill rates on a portion of the cash deposited in the account. Each partnership deposits its assets in separate commodity trading accounts with the commodity brokers. Dean Witter credits each partnership at each month-end with interest income as if 80% (100%, in the case of Spectrum Global Balanced), of each partnership's average daily net assets for the month were invested at a prevailing rate on U.S. Treasury bills. Generally, an individual trader would not receive any interest on the funds in his commodity account unless he committed substantially more than the minimum investment required for the partnerships. While the partnerships are credited with interest by Dean Witter on the respective percentage of their assets deposited as margin as described above, the form of margin posted, whether cash or interest-bearing obligations (such as U.S. Treasury bills), does not reduce the risks inherent in the trading of futures, forwards, and options. ADMINISTRATIVE CONVENIENCE The partnerships are structured so as to provide limited partners with numerous services designed to alleviate the administrative details involved in engaging directly in futures, forwards, and options trading, including monthly and annual financial reports (showing, among other things, the net asset value of a unit, trading profits or losses, and expenses), and all tax information relating to the partnerships necessary for limited partners to complete their federal income tax returns. SUPPLEMENTAL PERFORMANCE INFORMATION The tables on the following pages contain summary performance information and certain other data for each partnership, supplementing the information in Part I of this prospectus. 158 MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. - -------------------------------------------------------------------------------- All of the performance data below is through December 31, 2000 and does not include performance information for Northfield because Northfield will not commence trading for Spectrum Select until June 1, 2001. SPECTRUM SELECT STATISTICS - ------------------------------------------------ Trading Advisors: EMC Capital Management, Inc. Northfield Trading L.P. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Began Trading: August 1, 1991 Net Assets in Fund: $220.7 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 3.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Trading Profits Investment Style: Technical
RISK ANALYSIS - ------------------------------------------------ Compounded Annual Rate of Return: 9.53% Standard Deviation of Monthly Returns: 7.27% Annualized Standard Deviation: 25.18% Sharpe Ratio: 0.18 Sortino Ratio: 0.43 Largest Decline Period (6/95 - 8/96): -26.78% Average Recovery (No. of months): 9.00 Average Monthly Loss: -4.15% Standard Deviation of Monthly Loss: 3.06% % of Losing Months: 49.56% Average Monthly Gain: 6.07% Standard Deviation of Monthly Gain: 6.62% % of Winning Months: 50.44%
CURRENT SECTOR PARTICIPATION - ------------------------------------------------ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Foreign Exchange 26% Interest Rates 25% Stock Indices 13% Agriculturals 6% Energies 12% Metals 13% Softs 5%
TRADING STRATEGY - ------------------------------------------------ Spectrum Select uses the technically-based, aggressive, trend-following trading systems of EMC Capital Management, Inc., Northfield Trading L.P., Rabar Market Research, Inc. and Sunrise Capital Management, Inc. to participate in a diversified portfolio of futures and currency markets. EMC uses an aggressive systematic trading approach that blends several independent methodologies designed to identify emerging trends and follow existing trends. This program seeks significant returns in favorable market periods, while accepting a commensurate decline in unfavorable market cycles. Northfield uses a purely technical approach utilizing price action itself as analyzed by charts, numerical indicators, pattern recognition, or other techniques designed to provide information about market direction. Rabar uses a systematic approach with discretion, limiting the equity committed to each trade, market, and sector. Rabar's trading program uses constant research and analysis of market behavior. Sunrise's investment approach attempts to detect a trend, or lack of a trend, with respect to a particular market by analyzing price movement and volatility over time. Sunrise's trading system consists of multiple, independent, and parallel systems, each designed to seek out and extract different market inefficiencies over different time horizons. FUTURES MARKETS TRADED - ------------------------------------------------ Markets traded may include, but are not limited to, the following: AGRICULTURALS FOREIGN ENERGIES Corn EXCHANGE Crude oil Lean hogs Australian dollar Heating oil Soybeans British pound Natural gas Soybean meal Canadian dollar Unleaded gas Soybean oil Euro SOFTS Wheat Hong Kong dollar Cocoa STOCK Japanese yen Coffee INDICES Mexican peso Cotton ASE All Ordinaries New Zealand dollar Orange juice CAC 40 Index South African rand Sugar DAX Index Singapore dollar INTEREST Dow Jones Swedish krona RATES Industrial Index Swiss franc Australian bonds FT-SE Index METALS British bonds Hang Seng Index Aluminum Canadian bonds IBEX-35 Index Copper Eurodollar NASDAQ 100 Index Gold German bonds Nikkei Index Lead Italian bonds S&P 500 Index Nickel Japanese bonds U.S. Dollar Index Platinum Spanish bonds Silver U.S. Treasury bonds Tin U.S. Treasury notes Zinc
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 159 SPECTRUM SELECT PERFORMANCE - --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 31.18% -14.45% 41.63% -5.13% 23.63% 5.27% 6.22% 14.15% -7.56% 7.14%
(5 MONTHS) ROLLING 12-MONTH PERFORMANCE VS. MAR INDEX - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM SELECT MAR INDEX 07/31/92 17.29% 10.82% 08/31/92 33.40% 20.71% 09/30/92 18.89% 13.91% 10/31/92 17.81% 14.62% 11/30/92 23.04% 15.01% 12/31/92 -14.45% -1.40% 01/31/93 -0.54% 5.66% 02/28/93 21.64% 15.85% 03/31/93 25.83% 15.98% 04/30/93 41.48% 22.42% 05/31/93 46.32% 22.74% 06/30/93 36.79% 17.48% 07/31/93 40.71% 14.79% 08/31/93 30.64% 8.84% 09/30/93 32.17% 9.38% 10/31/93 29.72% 8.75% 11/30/93 26.28% 6.98% 12/31/93 41.62% 10.74% 01/31/94 24.70% 7.66% 02/28/94 1.21% -1.18% 03/31/94 14.61% 1.65% 04/30/94 2.88% -3.13% 05/31/94 7.81% -1.70% 06/30/94 18.66% 0.13% 07/31/94 -0.93% -6.92% 08/31/94 -6.93% -8.75% 09/30/94 -1.70% -6.98% 10/31/94 -1.50% -5.24% 11/30/94 5.47% -3.91% 12/31/94 -5.12% -7.72% 01/31/95 -1.32% -8.09% 02/28/95 16.04% -0.20% 03/31/95 24.30% 7.71% 04/30/95 36.86% 13.02% 05/31/95 42.28% 13.48% 06/30/95 26.81% 8.31% 07/31/95 19.20% 7.93% 08/31/95 21.93% 12.11% 09/30/95 11.08% 8.67% 10/31/95 12.75% 7.38% 11/30/95 8.15% 7.98% 12/31/95 23.62% 13.89% 01/31/96 34.05% 22.29% 02/29/96 7.49% 7.63% 03/31/96 -11.05% -2.00% 04/30/96 -15.11% -0.53% 05/31/96 -26.37% -5.68% 06/30/96 -24.07% -3.39% 07/31/96 -16.27% -1.85% 08/31/96 -12.44% -2.71% 09/30/96 -1.90% 3.01% 10/31/96 15.00% 11.68% 11/30/96 21.11% 17.01% 12/31/96 5.27% 9.76% 01/31/97 9.82% 10.59% 02/28/97 30.88% 22.30% 03/31/97 31.58% 20.87% 04/30/97 19.53% 13.80% 05/31/97 22.60% 15.63% 06/30/97 21.13% 15.44% 07/31/97 34.86% 24.78% 08/31/97 27.06% 20.31% 09/30/97 24.09% 17.36% 10/31/97 5.40% 7.78% 11/30/97 -0.66% 3.00% 12/31/97 6.22% 7.62% 01/31/98 3.10% 4.09% 02/28/98 0.55% 0.69% 03/31/98 0.46% 1.49% 04/30/98 -0.88% -0.72% 05/31/98 2.08% 4.29% 06/30/98 2.87% 3.85% 07/31/98 -7.17% -3.46% 08/31/98 17.98% 8.24% 09/30/98 24.19% 11.53% 10/31/98 22.42% 12.61% 11/30/98 16.61% 8.10% 12/31/98 14.17% 7.92% 01/31/99 9.91% 5.55% 02/28/99 13.45% 8.33% 03/31/99 10.36% 7.04% 04/30/99 22.70% 16.27% 05/31/99 15.26% 8.96% 06/30/99 14.59% 11.26% 07/31/99 10.62% 9.55% 08/31/99 -7.60% 2.28% 09/30/99 -11.56% -1.35% 10/31/99 -14.59% -5.74% 11/30/99 -7.95% -0.98% 12/31/99 -7.56% -1.41% 01/31/00 -2.08% 1.29% 02/29/00 -9.15% -2.68% 03/31/00 -8.75% -2.54% 04/30/00 -15.34% -8.08% 05/31/00 -10.06% -5.03% 06/30/00 -14.34% -9.29% 07/31/00 -12.57% -9.40% 08/31/00 -8.04% -8.21% 09/30/00 -11.23% -12.41% 10/31/00 -2.67% -6.38% 11/30/00 0.32% -2.37% 12/31/00 7.14% 4.67%
HISTORICAL PERFORMANCE COMPARISON (7/31/91 = $10) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM SELECT MAR INDEX S&P 500 SALMON CORP. BOND INDEX MSCI EAFE INDEX 7/31/91 10.0000 10.0000 10.0000 10.0000 10.0000 8/31/91 9.3803 9.5650 10.2200 10.2700 9.8000 9/30/91 9.9733 9.9926 10.0463 10.5473 10.3586 10/31/91 9.7459 9.8097 10.1869 10.5895 10.5036 11/30/91 9.4608 9.8293 9.7692 10.7060 10.0204 12/31/91 13.1191 11.3745 10.8829 11.1771 10.5415 1/31/92 11.3197 10.4987 10.6979 10.9871 10.3201 2/28/92 10.6301 10.1123 10.8263 11.0970 9.9486 3/31/92 10.2145 10.0456 10.6206 11.0193 9.2920 4/30/92 10.0248 9.7704 10.9392 11.0413 9.3385 5/31/92 9.8825 9.7684 10.9720 11.3173 9.9642 6/30/92 10.5932 10.3486 10.8074 11.4984 9.4959 7/31/92 11.7290 11.0823 11.2613 11.8549 9.2585 8/31/92 12.5134 11.5455 11.0136 11.9616 9.8418 9/30/92 11.8575 11.3827 11.1458 12.0812 9.6548 10/31/92 11.4812 11.2438 11.2015 11.8879 9.1528 11/30/92 11.6406 11.3045 11.5711 11.9711 9.2443 12/31/92 11.2239 11.2152 11.7215 12.2464 9.2905 1/31/93 11.2587 11.0930 11.8270 12.5526 9.2905 2/28/93 12.9301 11.7153 11.9808 12.8790 9.5785 3/31/93 12.8531 11.6509 12.2324 12.9048 10.4118 4/30/93 14.1831 11.9608 11.9511 12.9693 11.4009 5/31/93 14.4599 11.9895 12.2499 12.9952 11.6403 6/30/93 14.4903 12.1574 12.2866 13.3721 11.4657 7/31/93 16.5044 12.7215 12.2497 13.5058 11.8670 8/31/93 16.3478 12.5663 12.7029 13.8975 12.5078 9/30/93 15.6726 12.4507 12.6013 13.9531 12.2326 10/31/93 14.8930 12.2278 12.8785 14.0229 12.6118 11/30/93 14.6995 12.0933 12.7368 13.7565 11.5146 12/31/93 15.8953 12.4198 12.8896 13.8528 12.3437 1/31/94 14.0396 11.9429 13.3407 14.1299 13.3929 2/28/94 13.0863 11.5774 12.9672 13.7201 13.3527 3/31/94 14.7308 11.8437 12.4096 13.1987 12.7785 4/30/94 14.5911 11.5867 12.5833 13.0667 13.3280 5/31/94 15.5894 11.7860 12.7720 12.9883 13.2480 6/30/94 17.1948 12.1738 12.4655 12.8844 13.4335 7/31/94 16.3510 11.8415 12.8893 13.2838 13.5678 8/31/94 15.2154 11.4673 13.4049 13.2439 13.8934 9/30/94 15.4054 11.5820 13.0698 12.8863 13.4627 10/31/94 14.6694 11.5866 13.3704 12.8219 13.9204 11/30/94 15.5030 11.6202 12.8757 12.8475 13.2522 12/31/94 15.0807 11.4610 13.0688 13.0531 13.3317 1/31/95 13.8543 10.9762 13.4217 13.3925 12.8251 2/28/95 15.1857 11.5546 13.9317 13.7809 12.7866 3/31/95 18.3108 12.7574 14.3497 13.9187 13.5922 4/30/95 19.9689 13.0955 14.7802 14.1553 14.1087 5/31/95 22.1808 13.3744 15.3566 15.0471 13.9394 6/30/95 21.8039 13.1858 15.7098 15.1675 13.7024 7/31/95 19.4896 12.7810 16.2439 15.0158 14.5657 8/31/95 18.5519 12.8564 16.2764 15.3311 14.0122 9/30/95 17.1124 12.5864 16.9600 15.5611 14.2924 10/31/95 16.5391 12.4417 16.9091 15.8412 13.9065 11/30/95 16.7660 12.5475 17.6362 16.2214 14.2959 12/31/95 18.6421 13.0532 17.9713 16.5945 14.8820 1/31/96 18.5719 13.4226 18.6003 16.6111 14.9415 2/29/96 16.3231 12.4360 18.7677 15.9965 15.0013 3/31/96 16.2873 12.5019 18.9554 15.7885 15.3163 4/30/96 16.9509 13.0257 19.2397 15.5359 15.7605 5/31/96 16.3321 12.6154 19.7207 15.5514 15.4768 6/30/96 16.5566 12.7390 19.7996 15.8158 15.5697 7/31/96 16.3186 12.5441 18.9284 15.8316 15.1182 8/31/96 16.2440 12.5077 19.3259 15.7208 15.1484 9/30/96 16.7868 12.9655 20.4082 16.1295 15.5574 10/31/96 19.0195 13.8951 20.9796 16.7102 15.4018 11/30/96 20.3051 14.6816 22.5531 17.1280 16.0179 12/31/96 19.6238 14.3278 22.1020 16.8026 15.8097 1/31/97 20.3951 14.8436 23.4723 16.7522 15.2564 2/28/97 21.3639 15.2088 23.6601 16.8025 15.5158 3/31/97 21.4307 15.1115 22.6900 16.4328 15.5779 4/30/97 20.2609 14.8229 24.0514 16.7286 15.6714 5/31/97 20.0226 14.5872 25.5185 16.9461 16.6900 6/30/97 20.0545 14.7054 26.6668 17.2681 17.6080 7/31/97 22.0071 15.6524 28.8001 18.1833 17.8897 8/31/97 20.6390 15.0482 27.1873 17.7469 16.5659 9/30/97 20.8314 15.2167 28.6826 18.1551 17.4936 10/31/97 20.0457 14.9763 27.7361 18.3911 16.1466 11/30/97 20.1704 15.1216 29.0120 18.5750 15.9851 12/31/97 20.8452 15.4195 29.5052 18.7608 16.1290 1/31/98 21.0270 15.4503 29.8298 19.0235 16.8709 2/28/98 21.4809 15.3143 31.9775 19.0045 17.9506 3/31/98 21.5295 15.3373 33.6084 19.0805 18.5071 4/30/98 20.0820 14.7161 33.9445 19.1759 18.6552 5/31/98 20.4400 15.2135 33.3674 19.5019 18.5619 6/30/98 20.6300 15.2713 34.7355 19.7359 18.7104 7/31/98 20.4300 15.1110 34.3534 19.9333 18.8975 8/31/98 24.3500 16.2881 29.3722 20.1127 16.5542 9/30/98 25.8700 16.9706 31.2550 20.9373 16.0510 10/31/98 24.5400 16.8654 33.7960 20.5395 17.7364 11/30/98 23.5200 16.3459 35.8576 21.0941 18.6410 12/31/98 23.8000 16.6401 37.9373 21.1152 19.3866 1/31/99 23.1100 16.3073 39.5307 21.3686 19.3284 2/28/99 24.3700 16.5894 38.3052 20.5139 18.8645 3/31/99 23.7600 16.4169 39.8374 20.5139 19.6568 4/30/99 24.6400 17.1097 41.3911 20.4729 20.4627 5/31/99 23.5600 16.5759 40.3977 20.1044 19.4191 6/30/99 23.6400 16.9903 42.6196 19.7827 20.1764 7/31/99 22.6000 16.5536 41.2984 19.5651 20.7817 8/31/99 22.5000 16.6595 41.0919 19.5064 20.8648 9/30/99 22.8800 16.7411 39.9824 19.6820 21.0734 10/31/99 20.9600 15.8973 42.5013 19.7607 21.8742 11/30/99 21.6500 16.1850 43.3513 19.8002 22.6398 12/31/99 22.0000 16.4051 45.9090 19.7210 24.6774 1/31/00 22.6300 16.5183 43.6136 19.6816 23.1227 2/29/00 22.1400 16.1450 42.7849 19.8587 23.7470 3/31/00 21.6800 15.9997 46.9778 20.0374 24.6731 4/30/00 20.8600 15.7277 45.5685 19.9573 23.3901 5/31/00 21.1900 15.7419 44.6116 19.8376 22.8287 6/30/00 20.2500 15.4113 45.7269 20.3335 23.7190 7/31/00 19.7600 14.9983 44.9953 20.5775 22.7228 8/31/00 20.6900 15.2923 47.7850 20.8450 22.9273 9/30/00 20.3100 14.6638 45.2524 20.9909 21.8268 10/31/00 20.4000 14.8823 45.0714 21.0749 21.3248 11/30/00 21.7200 15.8020 41.5108 21.3489 20.5358 12/31/00 23.5700 17.1705 41.7184 21.7972 21.2751
CORRELATION ANALYSIS (8/91 - 12/00) - -------------------------------------------------------------------------------- Note: The closer the value to zero, the lower the correlation to the indexes compared.
Spectrum Select MAR S&P SAL EAFE - ------------------------------------------------------------------------------------------------------------------ Spectrum Select 1.00 0.91 0.03 0.32 0.08 MAR Index 1.00 0.10 0.36 0.11 S & P 500 Index 1.00 0.37 0.58 Salomon Corporate Bond Index 1.00 0.15 MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index performance data for managed futures is provided by Managed Account Reports, Inc., New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges, and are suitable only for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 160 MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. - -------------------------------------------------------------------------------- All of the performance data below is through December 31, 2000. SPECTRUM TECHNICAL STATISTICS - ------------------------------------------------ Trading Advisors: Campbell & Company, Inc. Chesapeake Capital Corporation John W. Henry & Company, Inc. Began Trading: November 1, 1994 Net Assets in Fund: $268.1 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets to JWH, 1/12 of 3.00% of Beg. Net Assets to Campbell, and 1/12 of 4.00% of Beg. Net Assets to Chesapeake Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 19.00% of Trading Profits to Chesapeake and 20.00% of Monthly Trading Profits to each of JWH and Campbell Investment Style: Technical
RISK ANALYSIS - ------------------------------------------------ Compounded Annual Rate of Return: 8.01% Standard Deviation of Monthly Returns: 4.76% Annualized Standard Deviation: 16.49% Sharpe Ratio: 0.18 Sortino Ratio: 0.37 Largest Decline Period (5/99 - 9/00): -24.32% Average Recovery (No. of months): 2.78 Average Monthly Loss: -3.07% Standard Deviation of Monthly Loss: 2.36% % of Losing Months: 48.65% Average Monthly Gain: 4.38% Standard Deviation of Monthly Gain: 3.43% % of Winning Months: 51.35%
CURRENT SECTOR PARTICIPATION - ------------------------------------------------ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Foreign Exchange 26% Interest Rates 31% Stock Indices 12% Agriculturals 4% Energies 11% Metals 12% Softs 4%
TRADING STRATEGY - ------------------------------------------------ Spectrum Technical is managed by Campbell & Company, Inc., Chesapeake Capital Corporation and John W. Henry & Company, Inc. These three trading advisors employ a combination of investment approaches. Campbell uses a highly disciplined, systematic investment approach designed to detect and react to price movements in the futures and forward markets. Campbell's core systematic approach has been used successfully for over twenty years. The trading methodology employed by Chesapeake is based on the analysis of interrelated mathematical and statistical formulas, including the technical analysis of historical data, used to determine optimal price support and resistance levels and market entry and exit points. This trading system was designed in the 1980s and is continually updated based on research. JWH's trading programs use disciplined systematic quantitative methodologies to identify short- to long-term trends in both the financial and non-financial futures markets. These programs are differentiated by a distinctive style, timing, and market characteristic. FUTURES MARKETS TRADED - ------------------------------------------------ Markets traded may include, but are not limited to, the following: AGRICULTURALS FOREIGN STOCK Corn EXCHANGE INDICES Feeder cattle Australian dollar ASE All Ordinaries Lean hogs British pound CAC 40 Index Live cattle Canadian dollar DAX Index Pork bellies Euro Dow Jones Soybeans Hong Kong dollar Industrial Index Soybean meal Indonesian rupiah FT-SE Index Soybean oil Japanese yen Hang Seng Index Wheat Mexican peso IBEX-35 Index SOFTS New Zealand dollar NASDAQ 100 Index Cocoa Norwegian krone Nikkei Index Coffee Singapore dollar S&P 500 Index Cotton South African rand Swedish Index Orange juice Swedish krona Taiwan Index Sugar Swiss franc Toronto Index ENERGIES METALS INTEREST Crude oil Aluminum RATES Gas oil Copper Australian bonds Heating oil Gold British bonds Natural gas Lead Canadian bonds Unleaded gas Nickel Euro bonds Platinum Eurodollar Silver German bonds Tin Japanese bonds Zinc Spanish bonds Swiss bonds U.S. Treasury bonds U.S. Treasury notes
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 161 SPECTRUM TECHNICAL PERFORMANCE - --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 -2.20% 17.59% 18.35% 7.49% 10.18% -7.51% -7.85%
(2 MONTHS) ROLLING 12-MONTH PERFORMANCE VS. MAR INDEX - -------------------------------------------------------------------------------- [graphic omitted] HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) - -------------------------------------------------------------------------------- [graphic omitted] CORRELATION ANALYSIS (11/94 - 12/00) - -------------------------------------------------------------------------------- Note: The closer the value to zero, the lower the correlation to the indexes compared.
Spectrum Technical MAR S&P SAL EAFE - --------------------------------------------------------------------------------------------------------------------- Spectrum Technical 1.00 0.94 0.06 0.30 0.08 MAR Index 1.00 0.05 0.36 0.07 S & P 500 Index 1.00 0.31 0.70 Salomon Corporate Bond Index 1.00 0.03 MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index performance data for managed futures is provided by Managed Account Reports, Inc., New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges, and are suitable only for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 162 MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. - -------------------------------------------------------------------------------- All of the performance data below is through December 31, 2000. SPECTRUM STRATEGIC STATISTICS - ------------------------------------------------ Trading Advisors: Allied Irish Capital Management, Ltd. Blenheim Investments Inc. Eclipse Capital Management Inc. Began Trading: November 1, 1994 Net Assets in Fund: $74.2 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 3.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Trading Profits Investment Style: Fundamental/Technical
RISK ANALYSIS - ------------------------------------------------ Compounded Annual Rate of Return: 0.96% Standard Deviation of Monthly Returns: 7.36% Annualized Standard Deviation: 25.49% Sharpe Ratio: -0.16 Sortino Ratio: -0.28 Largest Decline Period (1/00 - 10/00): -43.28% Average Recovery (No. of months): 4.67 Average Monthly Loss: -5.35% Standard Deviation of Monthly Loss: 4.15% % of Losing Months: 50.00% Average Monthly Gain: 6.04% Standard Deviation of Monthly Gain: 5.10% % of Winning Months: 50.00%
CURRENT SECTOR PARTICIPATION - ------------------------------------------------ [graphic omitted] TRADING STRATEGY - ------------------------------------------------ Spectrum Strategic is managed by Allied Irish Capital Management, Ltd., Blenheim Investments Inc., and Eclipse Capital Management, Inc. All three trading advisors employ an investment approach that evaluates key economic indicators, such as supply and demand levels and geopolitical conditions, as well as certain technical factors. Allied Irish employs multiple investment professionals using a discretionary trading approach. Several strategies are applied to investments in a broad range of financial instruments. Blenheim's program has a strong global concentration using a discretionary trading approach supplemented by a systematic and mathematical investment process. Investments are made in markets in which the trading advisor has a clear understanding of fundamental factors and geopolitical forces that influence price behavior. Eclipse employs a systemic trading approach using multiple trend-following and macroeconomic driven models. A key characteristic of the Eclipse trading program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. FUTURES MARKETS TRADED - ------------------------------------------------ Markets traded may include, but are not limited to, the following: AGRICULTURALS METALS STOCK Corn Aluminum INDICES Lean hogs Copper CAC 40 Index Live cattle Gold DAX Index Soybeans Nickel FT-SE Index Soybean meal Silver NASDAQ 100 Index Soybean oil Zinc Nikkei Index Wheat ENERGIES S&P 500 Index SOFTS Crude oil INTEREST Cocoa Gas oil RATES Coffee Heating oil British bonds Lumber Natural gas Euro bonds Sugar Unleaded gas Eurodollar FOREIGN French bonds EXCHANGE German bonds Australian dollar Italian bonds British pound Japanese bonds Canadian dollar U.S. Treasury bonds Euro U.S. Treasury notes Japanese yen Swiss franc
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 163 SPECTRUM STRATEGIC PERFORMANCE - --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 0.10% 10.49% -3.53% 0.37% 7.84% 37.23% -33.06%
(2 MONTHS) ROLLING 12-MONTH PERFORMANCE VS. MAR INDEX - -------------------------------------------------------------------------------- [graphic omitted] HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) - -------------------------------------------------------------------------------- [graphic omitted] CORRELATION ANALYSIS (11/94 - 12/00) - -------------------------------------------------------------------------------- Note: The closer the value to zero, the lower the correlation to the indexes compared.
Spectrum Strategic MAR S&P SAL EAFE - --------------------------------------------------------------------------------------------------------------------- Spectrum Strategic 1.00 0.60 0.04 0.03 0.12 MAR Index 1.00 0.05 0.36 0.07 S&P 500 Index 1.00 0.31 0.70 Salomon Corporate Bond Index 1.00 0.03 MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index performance data for managed futures is provided by Managed Account Reports, Inc., New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges, and are suitable only for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed investment decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 164 MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. - -------------------------------------------------------------------------------- All of the performance data below is through December 31, 2000. SPECTRUM GLOBAL BALANCED STATISTICS - ------------------------------------------------ Trading Advisor: RXR, Inc. Began Trading: November 1, 1994 Net Assets in Fund: $55.9 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 1.25% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Trading Profits Investment Style: Technical
RISK ANALYSIS - ------------------------------------------------ Compounded Annual Rate of Return: 8.20% Standard Deviation of Monthly Returns: 2.98% Annualized Standard Deviation: 10.31% Sharpe Ratio: 0.31 Sortino Ratio: 0.49 Largest Decline Period (2/96 - 5/96): -10.64% Average Recovery (No. of months): 3.57 Average Monthly Loss: -1.93% Standard Deviation of Monthly Loss: 1.89% % of Losing Months: 41.89% Average Monthly Gain: 2.60% Standard Deviation of Monthly Gain: 2.02% % of Winning Months: 58.11%
CURRENT SECTOR PARTICIPATION - ------------------------------------------------ [graphic omitted] TRADING STRATEGY - ------------------------------------------------ Spectrum Global Balanced follows the tenets of Modern Portfolio Theory and offers a balanced portfolio that participates in global stocks, global bonds, and alternative investments within managed futures. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Dean Witter offers. Within global stock and global bond components of the fund, RXR, Inc. analyzes various fundamental information, such as growth data, labor wage rates, central bank interest rate policies and inflation, to determine its approaches to these markets. Within the global currency and commodity components of the Fund, RXR employs a technical trend-following trading system to analyze price data, determine profit and risk potential, and initiate trades overall. RXR uses a computer-based model to reallocate assets among various market sectors within each of the independent strategies. The returns achieved by Spectrum Global Balanced will tend to be more highly correlated to the performance of global stock and global bond markets than will be the returns derived within other funds in the Spectrum Series. FUTURES MARKETS TRADED - ------------------------------------------------ Markets traded may include, but are not limited to, the following: AGRICULTURALS STOCK INTEREST Corn INDICES RATES Lean hogs DAX Index Australian bonds Live cattle FT-SE Index British bonds Soybean oil Nikkei Index Canadian bonds Wheat S&P 500 Index Euro bonds SOFTS FOREIGN Eurodollar Cotton EXCHANGE French bonds Sugar Australian dollar German bonds ENERGIES British pound Italian bonds Crude oil Canadian dollar Japanese bonds Gas oil Euro Spanish bonds Natural gas Japanese yen U.S. Treasury bonds METALS Mexican peso U.S. Treasury notes Copper New Zealand dollar Nickel Singapore dollar Zinc Swiss franc
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 165 SPECTRUM GLOBAL BALANCED PERFORMANCE - --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 - -1.70% 22.79% -3.65% 18.23% 16.36% 0.75% 0.87%
(2 MONTHS) ROLLING 12-MONTH PERFORMANCE VS. MAR INDEX - -------------------------------------------------------------------------------- [graphic omitted] HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) - -------------------------------------------------------------------------------- [graphic omitted] CORRELATION ANALYSIS (11/94 - 12/00) - -------------------------------------------------------------------------------- Note: The closer the value to zero, the lower the correlation to the indexes compared.
Spectrum Global Balanced MAR S&P SAL EAFE - ------------------------------------------------------------------------------------------------------------------ Spectrum Global Balanced 1.00 0.70 0.48 0.63 0.35 MAR Index 1.00 0.05 0.36 0.07 S&P 500 Index 1.00 0.31 0.70 Salomon Corporate Bond Index 1.00 0.03 MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index performance data for managed futures is provided by Managed Account Reports, Inc., New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges, and are suitable only for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed investment decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 166 MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. - -------------------------------------------------------------------------------- All of the performance data below is a pro forma of Cornerstone IV based on the Spectrum Currency fee structure and is through December 31, 2000. SPECTRUM CURRENCY STATISTICS - ------------------------------------------------ Trading Advisors: John W. Henry & Company, Inc. Sunrise Capital Partners, LLC Began Trading: July 3, 2000 Net Assets in Fund: $15.7 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 20.00% of Trading Profits Investment Style: Technical
RISK ANALYSIS - ------------------------------------------------ Compounded Annual Rate of Return: 9.82% Standard Deviation of Monthly Returns: 8.02% Annualized Standard Deviation: 27.77% Sharpe Ratio: 0.17 Largest Decline Period (6/95 - 8/96): -46.06% Average Recovery (No. of months): 5.17 Average Monthly Loss: -5.16% Standard Deviation of Monthly Loss: 4.67% % of Losing Months: 44.51% Average Monthly Gain: 6.11% Standard Deviation of Monthly Gain: 6.47% % of Winning Months: 55.49%
CURRENT SECTOR PARTICIPATION - ------------------------------------------------ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Foreign Exchange 100%
TRADING STRATEGY - ------------------------------------------------ Spectrum Currency, managed by John W. Henry & Company, Inc. and Sunrise Capital Partners, LLC, is structured to exclusively trade a portfolio of diverse world currencies. Each trading advisor implements a technical, trend-following program to participate in international currencies, primarily in the forward dealer markets, futures contracts, and may also trade in spot (cash) currency markets. JWH employs the International Foreign Exchange Program, which seeks to identify and capitalize on intermediate-term price movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. Sunrise's Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as cross-rates selectively against each other and/or as outrights against the U.S. dollar. FUTURES MARKETS TRADED - ------------------------------------------------ Markets traded may include, but are not limited to, the following: FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Czech koruna Danish krone Euro Greek drachma Hong Kong dollar Japanese yen Mexican peso New Zealand dollar Norwegian krone Singapore dollar South African rand Swedish krona Swiss franc Thai baht PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 167 PRO FORMA FOR SPECTRUM CURRENCY PERFORMANCE - --------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 7.74% 25.71% -15.61% 43.03% 32.66% 5.11% -10.03% -13.04% 21.28% 13.91% 25.53% 2.67% -1.33% 14.93%
(8 MONTHS) ROLLING 12-MONTH PRO FORMA PERFORMANCE VS. MAR INDEX - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
APR-88 -4.51% -1.22% MAY-88 35.47% 7.84% JUN-88 49.12% 26.45% Jul-88 62.12% 15.67% Aug-88 88.76% 21.13% Sep-88 77.21% 23.80% Oct-88 58.52% 25.14% Nov-88 55.08% 17.59% Dec-88 25.71% 7.26% Jan-89 81.80% 19.88% Feb-89 48.38% 11.23% Mar-89 44.76% 16.74% Apr-89 41.75% 17.87% May-89 25.68% 22.71% Jun-89 12.21% 6.35% Jul-89 -9.79% 13.47% Aug-89 -27.43% 6.40% Sep-89 -37.97% 3.32% Oct-89 -36.00% -3.07% Nov-89 -33.89% -2.00% Dec-89 -15.61% 4.68% Jan-90 -24.16% 0.71% Feb-90 -6.79% 7.36% Mar-90 -4.49% 7.69% Apr-90 -3.32% 12.99% May-90 -20.80% -3.66% Jun-90 -8.85% -2.20% Jul-90 29.12% 1.07% Aug-90 67.06% 11.28% Sep-90 95.43% 16.17% Oct-90 105.95% 22.75% Nov-90 78.34% 20.62% Dec-90 43.03% 14.23% Jan-91 22.95% 7.28% Feb-91 13.24% 6.80% Mar-91 36.35% 9.85% Apr-91 34.56% 5.39% May-91 47.27% 10.61% Jun-91 41.81% 9.53% Jul-91 4.20% 2.06% Aug-91 -10.19% -6.24% Sep-91 2.65% -3.79% Oct-91 -11.77% -6.22% Nov-91 -3.79% -6.50% Dec-91 32.66% 10.01% Jan-92 32.24% 6.45% Feb-92 29.60% 2.77% Mar-92 3.83% -3.03% Apr-92 -4.29% -5.17% May-92 -2.03% -4.35% Jun-92 6.19% 0.74% Jul-92 28.42% 10.82% Aug-92 61.63% 20.71% Sep-92 39.34% 13.91% Oct-92 44.77% 14.62% Nov-92 38.16% 15.01% Dec-92 5.11% -1.40% Jan-93 11.22% 5.66% Feb-93 38.75% 15.85% Mar-93 31.71% 15.98% Apr-93 40.80% 22.42% May-93 41.61% 22.74% Jun-93 20.63% 17.48% Jul-93 18.11% 14.79% Aug-93 -4.48% 8.84% Sep-93 1.48% 9.38% Oct-93 -4.62% 8.75% Nov-93 -11.96% 6.98% Dec-93 -10.03% 10.74% Jan-94 -5.31% 7.66% Feb-94 -19.14% -1.18% Mar-94 -16.15% 1.65% Apr-94 -18.88% -3.13% May-94 -24.70% -1.70% Jun-94 -19.64% 0.14% Jul-94 -27.06% -6.92% Aug-94 -24.61% -8.75% Sep-94 -21.78% -6.98% Oct-94 -11.52% -5.24% Nov-94 -11.10% -3.91% Dec-94 -13.04% -7.72% Jan-95 -18.60% -8.09% Feb-95 -11.15% -0.20% Mar-95 11.90% 7.72% Apr-95 17.82% 13.02% May-95 16.24% 13.48% Jun-95 7.74% 8.31% Jul-95 11.08% 7.93% Aug-95 21.38% 12.11% Sep-95 19.09% 8.67% Oct-95 14.04% 7.38% Nov-95 18.84% 7.98% Dec-95 21.28% 13.89% Jan-96 35.22% 22.29% Feb-96 19.81% 7.63% Mar-96 -2.77% -2.00% Apr-96 -1.67% -0.53% May-96 4.66% -5.67% Jun-96 5.35% -3.39% Jul-96 2.94% -1.85% Aug-96 -5.02% -2.71% Sep-96 -4.33% 3.01% Oct-96 3.67% 11.68% Nov-96 11.09% 17.01% Dec-96 13.91% 9.77% Jan-97 15.88% 10.59% Feb-97 29.30% 22.30% Mar-97 25.89% 20.87% Apr-97 23.12% 13.80% May-97 14.95% 15.63% Jun-97 16.70% 15.43% Jul-97 30.13% 24.78% Aug-97 35.54% 20.31% Sep-97 33.50% 17.36% Oct-97 25.57% 7.78% Nov-97 24.45% 3.00% Dec-97 25.53% 7.62% Jan-98 17.38% 4.09% Feb-98 7.15% 0.69% Mar-98 10.12% 1.49% Apr-98 4.61% -0.72% May-98 16.65% 4.29% Jun-98 27.78% 3.85% Jul-98 18.75% -3.46% Aug-98 17.55% 8.24% Sep-98 14.18% 11.53% Oct-98 17.18% 12.61% Nov-98 7.52% 8.10% Dec-98 2.67% 7.92% Jan-99 1.46% 5.55% Feb-99 6.55% 8.33% Mar-99 6.34% 7.04% Apr-99 12.39% 16.26% May-99 4.79% 8.95% Jun-99 -6.13% 11.26% Jul-99 -11.08% 9.55% Aug-99 -10.31% 2.28% Sep-99 -4.42% -1.35% Oct-99 -12.60% -5.74% Nov-99 -3.03% -0.98% Dec-99 -1.33% -1.41% Jan-00 3.33% 1.29% Feb-00 0.63% -2.68% Mar-00 -2.37% -2.54% Apr-00 2.99% -8.08% May-00 4.54% -5.03% Jun-00 0.24% -9.29% Jul-00 6.06% -9.39% Aug-00 5.11% -8.21% Sep-00 4.09% -12.41% Oct-00 18.52% -6.38% Nov-00 10.82% -2.37% Dec-00 14.93% 4.66%
HISTORICAL PRO FORMA PERFORMANCE COMPARISON (4/30/87 = $10) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PRO FORMA FOR SPECTRUM CURRENCY L.P. MAR INDEX S&P 500 INDEX SALMON CORP. BOND INDEX MSCI EAFE INDEX APR-97 10.0000 10.0000 10.0000 10.0000 10.0000 MAY-87 8.9410 9.7460 10.0900 9.9500 10.0000 Jun-87 8.9186 9.5959 10.5945 10.0993 9.6800 Jul-87 8.7411 9.9404 11.1348 9.9781 9.6606 Aug-87 7.6791 9.5706 11.5468 9.8983 10.3851 Sep-87 7.6660 9.4060 11.2928 9.4826 10.2189 Oct-87 8.7155 9.4540 8.8648 9.9662 8.7883 Nov-87 9.6315 10.1763 8.1379 10.0958 8.8762 Dec-87 10.7738 10.8490 8.7564 10.3078 9.1425 Jan-88 8.5921 10.2469 9.1417 10.8438 9.3071 Feb-88 8.6832 10.3811 9.5531 10.9956 9.9307 Mar-88 9.1946 10.0946 9.2665 10.7867 10.5464 Apr-88 9.5495 9.8776 9.3777 10.6249 10.7046 May-88 12.1126 10.5098 9.4340 10.5612 10.3621 Jun-88 13.2996 12.1336 9.8680 10.9625 10.0927 Jul-88 14.1707 11.4978 9.8483 10.8419 10.4157 Aug-88 14.4952 11.5932 9.4938 10.8961 9.7387 Sep-88 13.5849 11.6442 9.9020 11.2557 10.1672 Oct-88 13.8158 11.8305 10.1892 11.5709 11.0416 Nov-88 14.9363 11.9666 10.0262 11.3742 11.7041 Dec-88 13.5442 11.6363 10.2067 11.4197 11.7743 Jan-89 15.6205 12.2844 10.9620 11.6481 11.9862 Feb-89 12.8838 11.5473 10.6770 11.4967 12.0461 Mar-89 13.3103 11.7840 10.9332 11.5657 11.8172 Apr-89 13.5366 11.6426 11.5127 11.8086 11.9236 May-89 15.2233 12.8965 11.9502 12.2573 11.2797 Jun-89 14.9234 12.9042 11.8904 12.7353 11.0879 Jul-89 12.7834 13.0461 12.9724 12.9645 12.4850 Aug-89 10.5195 12.3351 13.2059 12.7571 11.9232 Sep-89 8.4261 12.0304 13.1531 12.8081 12.4717 Oct-89 8.8423 11.4674 12.8506 13.1667 11.9728 Nov-89 9.8742 11.7277 13.0948 13.2589 12.5714 Dec-89 11.4294 12.1804 13.4091 13.2722 13.0365 Jan-90 11.8466 12.3716 12.5241 13.0200 12.5541 Feb-90 12.0089 12.3976 12.6619 13.0070 11.6753 Mar-90 12.7126 12.6902 13.0038 12.9940 10.4611 Apr-90 13.0876 13.1547 12.6917 12.7471 10.3774 May-90 12.0576 12.4246 13.8974 13.2442 11.5604 Jun-90 13.6034 12.6197 13.8140 13.5356 11.4564 Jul-90 16.5064 13.1851 13.7864 13.6710 11.6168 Aug-90 17.5744 13.7270 12.5318 13.2745 10.4900 Sep-90 16.4672 13.9755 11.9303 13.3940 9.0319 Oct-90 18.2111 14.0761 11.8945 13.5681 10.4409 Nov-90 17.6101 14.1465 12.6439 13.9480 9.8249 Dec-90 16.3475 13.9131 12.9979 14.1851 9.9919 Jan-91 14.5656 13.2717 13.5828 14.3979 10.3216 Feb-91 13.5984 13.2412 14.5336 14.5707 11.4260 Mar-91 17.3339 13.9403 14.8969 14.7310 10.7404 Apr-91 17.6112 13.8636 14.9416 14.9372 10.8478 May-91 17.7574 13.7430 15.5542 14.9969 10.9671 Jun-91 19.2916 13.8227 14.8543 14.9669 10.1665 Jul-91 17.2004 13.4564 15.5673 15.2213 10.6647 Aug-91 15.7831 12.8710 15.9098 15.6323 10.4514 Sep-91 16.9037 13.4463 15.6393 16.0544 11.0471 Oct-91 16.0670 13.2002 15.8583 16.1186 11.2018 Nov-91 16.9427 13.2266 15.2081 16.2959 10.6865 Dec-91 21.6867 15.3058 16.9418 17.0129 11.2422 Jan-92 19.2621 14.1273 16.6538 16.7237 11.0061 Feb-92 17.6229 13.6074 16.8536 16.8909 10.6099 Mar-92 17.9983 13.5176 16.5334 16.7727 9.9096 Apr-92 16.8554 13.1472 17.0294 16.8062 9.9591 May-92 17.3965 13.1446 17.0805 17.2264 10.6264 Jun-92 20.4861 13.9254 16.8243 17.5020 10.1270 Jul-92 22.0881 14.9127 17.5309 18.0446 9.8738 Aug-92 25.5095 15.5361 17.1452 18.2070 10.4958 Sep-92 23.5529 15.3170 17.3509 18.3891 10.2964 Oct-92 23.2608 15.1301 17.4377 18.0949 9.7610 Nov-92 23.4073 15.2118 18.0131 18.2216 9.8586 Dec-92 22.7940 15.0916 18.2473 18.6407 9.9079 Jan-93 21.4241 14.9271 18.4115 19.1067 9.9079 Feb-93 24.4513 15.7645 18.6508 19.6035 10.2150 Mar-93 23.7055 15.6778 19.0425 19.6427 11.1037 Apr-93 23.7316 16.0948 18.6045 19.7409 12.1586 May-93 24.6358 16.1334 19.0696 19.7804 12.4139 Jun-93 24.7122 16.3593 19.1268 20.3540 12.2277 Jul-93 26.0887 17.1184 19.0694 20.5575 12.6557 Aug-93 24.3668 16.9096 19.7750 21.1537 13.3391 Sep-93 23.9014 16.7540 19.6168 21.2383 13.0456 Oct-93 22.1853 16.4541 20.0484 21.3445 13.4500 Nov-93 20.6079 16.2731 19.8279 20.9390 12.2799 Dec-93 20.5069 16.7125 20.0658 21.0856 13.1641 Jan-94 20.2875 16.0707 20.7681 21.5073 14.2830 Feb-94 19.7702 15.5789 20.1866 20.8836 14.2402 Mar-94 19.8770 15.9372 19.3186 20.0900 13.6279 Apr-94 19.2509 15.5914 19.5891 19.8891 14.2139 May-94 18.5502 15.8596 19.8829 19.7698 14.1286 Jun-94 19.8598 16.3814 19.4057 19.6116 14.3264 Jul-94 19.0297 15.9342 20.0655 20.2196 14.4697 Aug-94 18.3694 15.4307 20.8681 20.1589 14.8170 Sep-94 18.6964 15.5850 20.3464 19.6146 14.3577 Oct-94 19.6294 15.5912 20.8144 19.5165 14.8459 Nov-94 18.3201 15.6364 20.0443 19.5555 14.1333 Dec-94 17.8328 15.4222 20.3450 19.8684 14.2181 Jan-95 16.5132 14.7698 20.8943 20.3850 13.6778 Feb-95 17.5651 15.5482 21.6883 20.9762 13.6368 Mar-95 22.2427 17.1668 22.3389 21.1860 14.4959 Apr-95 22.6809 17.6217 23.0091 21.5462 15.0467 May-95 21.5627 17.9970 23.9065 22.9036 14.8661 Jun-95 21.3967 17.7432 24.4563 23.0868 14.6134 Jul-95 21.1378 17.1985 25.2878 22.8559 15.5340 Aug-95 22.2962 17.3000 25.3384 23.3359 14.9437 Sep-95 22.2650 16.9367 26.4026 23.6859 15.2426 Oct-95 22.3852 16.7419 26.3234 24.1122 14.8310 Nov-95 21.7718 16.8842 27.4553 24.6909 15.2463 Dec-95 21.6281 17.5646 27.9770 25.2588 15.8714 Jan-96 22.3289 18.0617 28.9562 25.2841 15.9349 Feb-96 21.0450 16.7342 29.2168 24.3486 15.9986 Mar-96 21.6258 16.8229 29.5090 24.0321 16.3346 Apr-96 22.3027 17.5278 29.9516 23.6476 16.8083 May-96 22.5681 16.9757 30.7004 23.6712 16.5058 Jun-96 22.5410 17.1421 30.8232 24.0736 16.6048 Jul-96 21.7588 16.8798 29.4670 24.0977 16.1233 Aug-96 21.1778 16.8308 30.0858 23.9290 16.1555 Sep-96 21.3006 17.4468 31.7706 24.5512 16.5917 Oct-96 23.2070 18.6977 32.6602 25.4350 16.4258 Nov-96 24.1863 19.7560 35.1097 26.0709 17.0828 Dec-96 24.6362 19.2799 34.4075 25.5756 16.8607 Jan-97 25.8754 19.9740 36.5408 25.4989 16.2706 Feb-97 27.2106 20.4654 36.8331 25.5754 16.5472 Mar-97 27.2242 20.3344 35.3229 25.0127 16.6134 Apr-97 27.4583 19.9460 37.4423 25.4629 16.7131 May-97 25.9426 19.6289 39.7263 25.7939 17.7995 Jun-97 26.3058 19.7879 41.5140 26.2840 18.7785 Jul-97 28.3156 21.0622 44.8351 27.6771 19.0790 Aug-97 28.7035 20.2492 42.3243 27.0128 17.6672 Sep-97 28.4366 20.4760 44.6521 27.6341 18.6566 Oct-97 29.1418 20.1525 43.1786 27.9933 17.2200 Nov-97 30.1006 20.3480 45.1648 28.2732 17.0478 Dec-97 30.9254 20.7489 45.9326 28.5559 17.2012 Jan-98 30.3718 20.7904 46.4379 28.9557 17.9925 Feb-98 29.1569 20.6074 49.7814 28.9267 19.1440 Mar-98 29.9791 20.6383 52.3203 29.0424 19.7375 Apr-98 28.7230 19.8024 52.8435 29.1876 19.8954 May-98 30.2626 20.4717 51.9452 29.6838 19.7959 Jun-98 33.6127 20.5495 54.0750 30.0400 19.9543 Jul-98 33.6261 20.3337 53.4802 30.3404 20.1538 Aug-98 33.7404 21.9177 45.7256 30.6135 17.6547 Sep-98 32.4684 22.8361 48.6566 31.8687 17.1180 Oct-98 34.1470 22.6945 52.6124 31.2632 18.9154 Nov-98 32.3645 21.9955 55.8218 32.1073 19.8801 Dec-98 31.7496 22.3914 59.0595 32.1394 20.6753 Jan-99 30.8162 21.9436 61.5400 32.5251 20.6133 Feb-99 31.0658 22.3232 59.6323 31.2241 20.1186 Mar-99 31.8797 22.0910 62.0176 31.2241 20.9636 Apr-99 32.2814 23.0232 64.4363 31.1617 21.8231 May-99 31.7132 22.3049 62.8898 30.6008 20.7101 Jun-99 31.5515 22.8625 66.3487 30.1112 21.5178 Jul-99 29.9014 22.2749 64.2919 29.7800 22.1633 Aug-99 30.2632 22.4175 63.9704 29.6907 22.2520 Sep-99 31.0319 22.5273 62.2432 29.9579 22.4745 Oct-99 29.8434 21.3919 66.1645 30.0777 23.3285 Nov-99 31.3833 21.7791 67.4878 30.1379 24.1450 Dec-99 31.3268 22.0753 71.4696 30.0173 26.3181 Jan-00 31.8437 22.2276 67.8961 29.9573 24.6601 Feb-00 31.2610 21.7253 66.6061 30.2269 25.3259 Mar-00 31.1235 21.5298 73.1335 30.4989 26.3136 Apr-00 33.2461 21.1638 70.9395 30.3769 24.9453 May-00 33.1530 21.1828 69.4498 30.1946 24.3466 Jun-00 31.6280 20.7380 71.1860 30.9495 25.2961 Jul-00 31.7134 20.1822 70.0470 31.3209 24.2337 Aug-00 31.8085 20.5778 74.3899 31.7281 24.4518 Sep-00 32.3015 19.7321 70.4472 31.9502 23.2781 Oct-00 35.3701 20.0261 70.1654 32.0780 22.7427 Nov-00 34.7794 21.2637 64.6223 32.4950 21.9012 Dec-00 36.0036 23.1051 64.9454 33.1774 22.6896
CORRELATION ANALYSIS (5/87 - 12/00) - -------------------------------------------------------------------------------- Note: The closer the value to zero, the lower the correlation to the indexes compared.
Pro Forma for Spectrum Currency MAR S&P SAL EAFE - --------------------------------------------------------------------------------------------------------------------------- Pro Forma for Spectrum Currency 1.00 0.67 -0.09 0.08 -0.08 MAR Index 1.00 0.05 0.28 -0.04 S&P 500 Index 1.00 0.30 0.55 Salomon Corporate Bond Index 1.00 0.11 MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index performance data for managed futures is provided by Managed Account Reports, Inc., New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges, and are suitable only for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 168 MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. - -------------------------------------------------------------------------------- All of the performance data below is through December 31, 2000. SPECTRUM COMMODITY STATISTICS - ------------------------------------------------ Trading Advisor: Morgan Stanley Dean Witter Commodities Management Inc. Began Trading: January 2, 1998 Net Assets in Fund: $20.2 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.50% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Annual Incentive Fee: 17.50% of Trading Profits Investment Style: Technical
RISK ANALYSIS - ------------------------------------------------ Compounded Annual Rate of Return:....... -7.75% Standard Deviation of Monthly Returns:................................ 4.42% Annualized Standard Deviation:.......... 15.32% Sharpe Ratio:........................... -0.83 Sortino Ratio:.......................... -1.57 Largest Decline Period (2/98 - 2/99):... -38.60% Average Recovery (No. of months):....... N/A Average Monthly Loss:................... -4.05% Standard Deviation of Monthly Loss:..... 2.34% % of Losing Months:..................... 52.78% Average Monthly Gain:................... 3.31% Standard Deviation of Monthly Gain:..... 2.51% % of Winning Months:.................... 47.22%
CURRENT SECTOR PARTICIPATION - ------------------------------------------------ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Agriculturals 17% Energies 29% Metals 37% Softs 17%
TRADING STRATEGY - ------------------------------------------------ Spectrum Commodity features a long-only, broadly-diversified, actively-managed portfolio of traditional commodities. Its trading advisor, Morgan Stanley Dean Witter Commodities Management Inc., uses a technical approach to investing that is unique in the marketplace. The trading strategy seeks to benefit from supply and demand dynamics (based on consumer and producer reactions to price movements) by over-weighting exposure to commodities that are historically undervalued and showing signs of strengthening, and under-weighting exposure to those markets that are historically overvalued and showing signs of weakening. FUTURES MARKETS TRADED - ------------------------------------------------ Markets traded may include, but are not limited to, the following: AGRICULTURALS METALS Corn Aluminum Feeder cattle Copper Lean hogs Gold Live cattle Nickel Soybeans Platinum Soybean meal Silver Soybean oil Zinc Wheat SOFTS Cocoa Coffee Cotton Orange juice Sugar ENERGIES Crude oil Heating oil Natural gas Unleaded gas
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 169 SPECTRUM COMMODITY PERFORMANCE - --------------------------------------------------------------------------------
1998 1999 2000 - -34.30% 15.83% 3.15%
ROLLING 12-MONTH PERFORMANCE VS. MAR INDEX - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM COMMODITY MAR INDEX 12/31/98 -34.30% 7.92% 1/31/99 -36.13% 5.55% 2/28/99 -34.73% 8.33% 3/31/99 -29.14% 7.04% 4/30/99 -25.67% 16.27% 5/31/99 -24.91% 8.96% 6/30/99 -18.95% 11.26% 7/31/99 -12.99% 9.55% 8/31/99 0.28% 2.28% 9/30/99 -2.19% -1.35% 10/31/99 -1.47% -5.74% 11/30/99 8.97% -0.98% 12/31/99 15.83% -1.41% 1/31/00 21.17% 1.30% 2/29/00 22.03% -2.68% 3/31/00 13.17% -2.54% 4/30/00 7.23% -8.08% 5/31/00 18.89% -5.03% 6/30/00 12.79% -9.29% 7/31/00 8.20% -9.39% 8/31/00 6.76% -8.21% 9/30/00 1.58% -12.41% 10/31/00 1.49% -6.38% 11/30/00 4.72% -2.37% 12/31/00 3.15% 4.67%
HISTORICAL PERFORMANCE COMPARISON (12/31/97 = $10) - -------------------------------------------------------------------------------- EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM COMMODITY MAR INDEX S&P 500 SALAMON CORP. BOND INDEX MSCI EAFE INDEX 12/31/97 10.00 10.00 10.00 10.00 10.00 1/31/98 10.13 10.02 10.11 10.14 10.46 2/28/98 9.53 9.93 10.84 10.13 11.13 3/31/98 9.54 9.95 11.39 10.17 11.47 4/30/98 9.31 9.54 11.50 10.22 11.57 5/31/98 8.67 9.87 11.31 10.40 11.51 6/30/98 8.39 9.90 11.77 10.52 11.60 7/31/98 7.85 9.80 11.64 10.63 11.72 8/31/98 7.23 10.56 9.95 10.72 10.26 9/30/98 7.75 11.01 10.59 11.16 9.95 10/31/98 7.48 10.94 11.45 10.95 11.00 11/30/98 6.80 10.60 12.15 11.24 11.56 12/31/98 6.57 10.79 12.86 11.25 12.02 1/31/99 6.47 10.58 13.40 11.39 11.98 2/28/99 6.22 10.76 12.98 10.93 11.70 3/31/99 6.76 10.65 13.50 10.93 12.19 4/30/99 6.92 11.10 14.03 10.91 12.69 5/31/99 6.51 10.75 13.69 10.72 12.04 6/30/99 6.80 11.02 14.44 10.54 12.51 7/31/99 6.83 10.74 14.00 10.43 12.88 8/31/99 7.25 10.80 13.93 10.40 12.94 9/30/99 7.58 10.86 13.55 10.49 13.07 10/31/99 7.37 10.31 14.40 10.53 13.56 11/30/99 7.41 10.50 14.69 10.55 14.04 12/31/99 7.61 10.64 15.56 10.51 15.30 1/31/00 7.84 10.71 14.78 10.49 14.34 2/29/00 7.59 10.47 14.50 10.59 14.72 3/31/00 7.65 10.38 15.92 10.68 15.30 4/30/00 7.42 10.20 15.44 10.64 14.50 5/31/00 7.74 10.21 15.12 10.57 14.15 6/30/00 7.67 10.00 15.50 10.84 14.71 7/31/00 7.39 9.73 15.25 10.97 14.09 8/31/00 7.74 9.92 16.20 11.11 14.22 9/30/00 7.70 9.51 15.34 11.19 13.53 10/31/00 7.48 9.65 15.28 11.23 13.22 11/30/00 7.76 10.25 14.07 11.38 12.73 12/31/00 7.85 11.14 14.14 11.62 13.19
CORRELATION ANALYSIS (1/98 - 12/00) - -------------------------------------------------------------------------------- Note: The closer the value to zero, the lower the correlation to the indexes compared.
Spectrum Commodity MAR S&P SAL EAFE - ------------------------------------------------------------------------------------------------------------------------------ Spectrum Commodity 1.00 0.23 0.15 0.04 0.12 MAR Index 1.00 -0.24 0.15 -0.18 S&P 500 Index 1.00 0.10 0.78 Salomon Corporate Bond Index 1.00 -0.05 MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index performance data for managed futures is provided by Managed Accounts Reports, Inc., New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges, and are suitable only for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 170 The following charts were prepared by the general partner to illustrate the change in fund assets from the inception of trading in each partnership through December 31, 2000, to reflect each partnership's performance and net additions of capital. SPECTRUM SELECT FUND ASSET HISTORY EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM SELECT Aug-91 $52.0 Dec-91* $80.7 Dec-92 $60.9 Dec-93** $199.2 Dec-94 $168.2 Dec-95 $176.4 Dec-96** $163.8 Dec-97 $166.8 Dec-98*** $200.1 Dec-99 $213.8 Dec-00 $220.7
Year-end net assets (millions) * Spectrum Select had multiple closings during initial offering ** Re-opening of fund in September 1993 and November 1996 *** Effective May 1998, Spectrum Select became part of the Spectrum Series. SPECTRUM TECHNICAL FUND ASSET HISTORY EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM TECHNICAL Nov-94 $8.0 Dec-94 $14.9 Dec-95 $59.3 Dec-96 $113.0 Dec-97 $182.0 Dec-98 $255.1 Dec-99 $268.8 Dec-00 $268.1
Year-end net assets (millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 171 SPECTRUM STRATEGIC FUND ASSET HISTORY EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM STRATEGIC Nov-94 $6.7 Dec-94 $11.9 Dec-95 $32.5 Dec-96 $45.1 Dec-97 $59.1 Dec-98 $70.4 Dec-99 $107.7 Dec-00 $74.2
Year-end net assets (millions) SPECTRUM GLOBAL BALANCED FUND ASSET HISTORY EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM GLOBAL BALANCED NOV-94 $2.5 Dec-94 $3.8 Dec-95 $14.8 Dec-96 $18.7 Dec-97 $25.7 Dec-98 $45.9 Dec-99 $57.9 Dec-00 $55.9
Year-end net assets (millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 172 SPECTRUM CURRENCY FUND ASSET HISTORY EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM CURRENCY Jul-00 $6.300 Dec-00 $15.700
Year-end net assets (millions) SPECTRUM COMMODITY FUND ASSET HISTORY EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS Spectrum Commodity Dec-97 $25.736 Dec-98 $24.908 Dec-99 $23.640 Dec-00 $20.200
Year-end net assets (millions) * Spectrum Commodity had multiple closings during its initial offering PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 173 The following charts were prepared by the general partner to illustrate the monthly performance, on a net asset value basis, of each partnership versus that of the MAR Index, from the inception of trading through December 31, 2000. The MAR Index represents the dollar-weighted average performance of public managed futures funds. To qualify for inclusion in the MAR Index, an investment product must appear in MAR's fund performance tables. MAR imposes no minimum size restrictions on the public managed futures funds that it tracks. As of December 31, 2000, there were 62 public managed futures funds included in the calculation of the MAR Index. SPECTRUM SELECT VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON [FUND PERFORMANCE CHART] SPECTRUM TECHNICAL VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON [FUND ASSET HISTORICAL PERFORMANCE] PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 174 SPECTRUM STRATEGIC VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON [FUND PERFORMANCE CHART] SPECTRUM GLOBAL BALANCED VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON [FUND PERFORMANCE CHART] PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 175 SPECTRUM CURRENCY VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MAR INDEX SPECTRUM CURRENCY Spectrum Curren- cy Spectrum Curren- cy Spectrum Curren- cy Spectrum Curren- cy Spectrum Curren- cy Spectrum Curren- cy Spectrum Curren- cy 07/31/00 $9.73 $10.06 08/31/00 $9.92 $10.10 09/30/00 $9.51 $10.24 10/31/00 $9.65 $10.99 11/30/00 $10.25 $10.81 12/31/00 $11.14 $11.17 MAR In- dex Spectrum Curren- cy 07/31/00 9.73 10.06 08/31/00 9.92 10.1 09/30/00 9.51 10.24 10/31/00 9.65 10.99 11/30/00 10.25 10.81 12/31/00 11.14 11.17
SPECTRUM COMMODITY VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MAR INDEX SPECTRUM COMODITY Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency Spectrum Currency 12/31/97 10 10 01/31/98 10.02 10.13 02/28/98 9.93 9.53 03/31/98 9.95 9.54 04/30/98 9.54 9.31 05/31/98 9.87 8.67 06/30/98 9.90 8.39 07/31/98 9.80 7.85 08/31/98 10.56 7.23 09/30/98 11.01 7.75 10/31/98 10.94 7.48 11/30/98 10.60 6.8 12/31/98 10.79 6.57 01/31/99 10.58 6.47 02/28/99 10.76 6.22 03/31/99 10.65 6.76 04/30/99 11.10 6.92 05/31/99 10.75 6.51 06/30/99 11.02 6.8 07/31/99 10.74 6.83 08/31/99 10.80 7.25 09/30/99 10.86 7.58 10/31/99 10.31 7.37 11/30/99 10.50 7.41 12/31/99 10.64 7.61 01/31/00 10.71 7.84 02/29/00 10.47 7.59 03/31/00 10.38 7.65 04/30/00 10.20 7.42 05/31/00 10.21 7.74 06/30/00 10.00 7.67 07/31/00 9.73 7.39 08/31/00 9.92 7.74 09/30/00 9.51 7.7 10/31/00 9.65 7.48 11/30/00 10.25 7.76 12/31/00 11.14 7.85
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 176 ------------------- The following charts were prepared by the general partner to illustrate the performance, on a rate of return basis, of each partnership versus that of the MAR Index, from the inception of trading through December 31, 2000. SPECTRUM SELECT VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM SELECT MAR PUBLIC INDEX ITD 9.53% 5.90% 5 YR. 4.80% 5.63% 3 YR. 4.18% 3.65% 2 YR. -0.48% 1.58% 1 YR. 7.14% 4.66%
Data: August 1, 1991 through December 31, 2000 All returns are annualized. SPECTRUM TECHNICAL VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM TECHNICAL MAR INDEX ITD 8.01% 6.58% 5 YR. 6.93% 5.63% 3 YR. 3.20% 3.65% 2 YR. -0.12% 1.58% 1YR. 7.85% 4.66%
Data: November 1, 1994 through December 31, 2000 All returns are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 177 SPECTRUM STRATEGIC VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM STRATEGIC MAR INDEX ITD 0.96% 6.58% 5 YR. -0.83% 5.63% 3 YR. -0.31% 3.65% 2 YR. -4.15% 1.58% 1 YR. -33.06% 4.66%
Data: November 1, 1994 through December 31, 2000 All returns are annualized. SPECTRUM GLOBAL BALANCED VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM GLOBAL BALANCED MAR INDEX ITD 8.20% 6.58% 5 YR. 6.13% 5.62% 3 YR. 5.74% 3.65% 2 YR. 0.81% 1.58% 1 YR. 0.87% 4.66%
Data: November 1, 1994 through December 31, 2000 All returns are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 178 SPECTRUM CURRENCY VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM CURRENCY MAR INDEX YTD 11.70% 11.42%
Data: July 3, 2000 through December 31, 2000 All returns are annualized. SPECTRUM COMMODITY VS. MAR INDEX HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM COMMODITY MAR INDEX ITD -7.75% 3.65% 2 YR. 9.29% 1.58% 1 YR. 3.15% 4.67%
Data: January 2, 1998 through December 31, 2000 All returns are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 179 The following chart was prepared to illustrate certain period performance and statistical information relating to Spectrum Select, from the inception of trading in August 1991 through December 2000.
SPECTRUM SELECT HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Beginning NAV per unit 10.00 Aug-91 (6.20) 9.38 Sep-91 6.29 9.97 Oct-91 (2.21) 9.75 Nov-91 (2.97) 9.46 Dec-91 38.69 13.12 31.54 31.19 Jan-92 (13.72) 11.32 Feb-92 (6.10) 10.63 Mar-92 (3.95) 10.21 (22.14) Apr-92 (1.86) 10.02 May-92 (1.40) 9.88 Jun-92 7.19 10.59 3.71 Jul-92 10.76 11.73 17.29 Aug-92 6.65 12.51 33.40 Sep-92 (5.20) 11.86 11.94 18.89 Oct-92 (3.20) 11.48 17.81 Nov-92 1.39 11.64 23.04 Dec-92 (3.61) 11.22 (5.34) (14.45) (14.45) Jan-93 0.36 11.26 (0.54) Feb-93 14.83 12.93 21.64 Mar-93 (0.62) 12.85 14.52 25.83 Apr-93 10.35 14.18 41.48 May-93 1.97 14.46 46.32 Jun-93 0.21 14.49 12.74 36.79 Jul-93 13.87 16.50 40.71 65.04 Aug-93 (0.91) 16.35 30.64 74.28 Sep-93 (4.16) 15.67 8.16 32.17 57.15 Oct-93 (4.98) 14.89 29.72 52.81 Nov-93 (1.28) 14.70 26.28 55.37 Dec-93 8.16 15.90 1.42 41.62 41.62 21.16 Jan-94 (11.70) 14.04 24.70 24.03 Feb-94 (6.77) 13.09 1.21 23.11 Mar-94 12.53 14.73 (7.33) 14.61 44.21 Apr-94 (0.95) 14.59 2.88 45.55 May-94 6.85 15.59 7.81 57.75 Jun-94 10.26 17.19 16.73 18.66 62.32 Jul-94 (4.89) 16.35 (0.93) 39.41 Aug-94 (6.91) 15.22 (6.93) 21.59 Sep-94 1.25 15.41 (10.41) (1.70) 29.92 Oct-94 (4.80) 14.67 (1.50) 27.77 Nov-94 5.66 15.50 5.47 33.18 Dec-94 (2.71) 15.08 (2.11) (5.12) (5.12) 34.36 Jan-95 (8.16) 13.85 (1.32) 23.05 Feb-95 9.68 15.19 16.04 17.44 Mar-95 20.54 18.31 21.42 24.30 42.46 Apr-95 9.07 19.97 36.86 40.79 May-95 11.07 22.18 42.28 53.40 Jun-95 (1.71) 21.80 19.08 26.81 50.47 Jul-95 (10.60) 19.49 19.20 18.09 Aug-95 (4.82) 18.55 21.93 13.48 Sep-95 (7.76) 17.11 (21.52) 11.08 9.19 Oct-95 (3.33) 16.54 12.75 11.05 Nov-95 1.39 16.77 8.15 14.06 Dec-95 11.15 18.64 8.94 23.62 23.62 17.28 Jan-96 (0.38) 18.57 34.05 32.28 Feb-96 (12.12) 16.32 7.49 24.73 Mar-96 (0.18) 16.29 (12.63) (11.05) 10.57
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 180
SPECTRUM SELECT HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Apr-96 4.05 16.95 (15.11) 16.17 May-96 (3.66) 16.33 (26.37) 4.76 Jun-96 1.41 16.56 1.65 (24.07) (3.71) Jul-96 (1.45) 16.32 (16.27) (0.20) Aug-96 (0.49) 16.24 (12.44) 6.76 Sep-96 3.39 16.79 1.39 (1.90) 8.97 Oct-96 13.28 19.02 15.00 29.65 Nov-96 6.78 20.31 21.11 30.98 Dec-96 (3.40) 19.62 16.90 5.27 5.27 30.13 Jan-97 3.98 20.40 9.82 47.21 Feb-97 4.71 21.36 30.88 40.68 Mar-97 0.33 21.43 9.21 31.58 17.04 Apr-97 (5.46) 20.26 19.53 1.46 May-97 (1.18) 20.02 22.60 (9.73) Jun-97 0.15 20.05 (6.42) 21.13 (8.02) Jul-97 9.78 22.01 34.86 12.92 Aug-97 (6.22) 20.64 27.06 11.25 Sep-97 0.92 20.83 3.87 24.09 21.73 Oct-97 (3.74) 20.05 5.40 21.20 Nov-97 0.60 20.17 (0.66) 20.31 Dec-97 3.37 20.85 0.07 6.22 6.22 11.82 Jan-98 0.86 21.03 3.10 13.22 Feb-98 2.14 21.48 0.55 31.60 Mar-98 0.23 21.53 3.28 0.46 32.19 Apr-98 (6.73) 20.08 (0.88) 18.47 May-98 1.79 20.44 2.08 25.15 Jun-98 0.93 20.63 (4.18) 2.87 24.60 Jul-98 (0.97) 20.43 (7.17) 25.19 Aug-98 19.19 24.35 17.98 49.90 Sep-98 6.24 25.87 25.40 24.19 54.11 Oct-98 (5.14) 24.54 22.42 29.03 Nov-98 (4.16) 23.52 16.61 15.83 Dec-98 1.19 23.80 (8.00) 14.17 14.17 21.28 Jan-99 (2.90) 23.11 9.91 13.31 Feb-99 5.45 24.37 13.45 14.07 Mar-99 (2.50) 23.76 (0.17) 10.36 10.87 Apr-99 3.70 24.64 22.70 21.61 May-99 (4.38) 23.56 15.26 17.67 Jun-99 0.34 23.64 (0.51) 14.59 17.88 Jul-99 (4.40) 22.60 10.62 2.69 Aug-99 (0.44) 22.50 (7.60) 9.02 Sep-99 1.69 22.88 (3.21) (11.56) 9.83 Oct-99 (8.39) 20.96 (14.59) 4.56 Nov-99 3.29 21.65 (7.95) 7.34 Dec-99 1.62 22.00 (3.85) (7.56) (7.56) 5.54 Jan-00 2.86 22.63 (2.08) 7.62 Feb-00 (2.17) 22.14 (9.15) 3.07 Mar-00 (2.08) 21.68 (1.45) (8.75) 0.70 Apr-00 (3.78) 20.86 (15.34) 3.87 May-00 1.58 21.19 (10.06) 3.67 Jun-00 (4.44) 20.25 (6.60) (14.34) (1.84) Jul-00 (2.42) 19.76 (12.57) (3.28) Aug-00 4.71 20.69 (8.04) (15.03) Sep-00 (1.84) 20.31 0.30 (11.23) (21.49) Oct-00 0.44 20.40 (2.67) (16.87) Nov-00 6.47 21.72 0.32 (7.65) Dec-00 8.52 23.57 16.05 7.14 7.14 (0.97) Compounded annual ROR: 9.53 Standard deviation of monthly returns: 7.27
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 181 The following chart was prepared to illustrate certain period peformance and statistical information relating to Spectrum Technical, from the inception of trading in November 1994 through December 2000.
SPECTRUM TECHNICAL HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.90) 9.91 Dec-94 (1.31) 9.78 (2.20) (2.20) Jan-95 (1.84) 9.60 Feb-95 5.10 10.09 Mar-95 10.21 11.12 13.70 Apr-95 3.60 11.52 May-95 0.69 11.60 Jun-95 (1.12) 11.47 3.15 Jul-95 (2.44) 11.19 Aug-95 (0.63) 11.12 Sep-95 (3.33) 10.75 (6.28) Oct-95 (0.09) 10.74 7.40 Nov-95 0.93 10.84 9.38 Dec-95 6.09 11.50 6.98 17.59 17.59 Jan-96 4.78 12.05 25.52 Feb-96 (6.39) 11.28 11.79 Mar-96 1.24 11.42 (0.70) 2.70 Apr-96 4.82 11.97 3.91 May-96 (3.84) 11.51 (0.78) Jun-96 3.21 11.88 4.03 3.57 Jul-96 (4.80) 11.31 1.07 Aug-96 (0.35) 11.27 1.35 Sep-96 5.50 11.89 0.08 10.60 Oct-96 9.92 13.07 21.69 30.70 Nov-96 8.34 14.16 30.63 42.89 Dec-96 (3.88) 13.61 14.47 18.35 18.35 39.16 Jan-97 3.67 14.11 17.10 46.98 Feb-97 1.13 14.27 26.51 41.43 Mar-97 (1.82) 14.01 2.94 22.68 25.99 Apr-97 (2.93) 13.60 13.62 18.06 May-97 (3.75) 13.09 13.73 12.84 Jun-97 0.69 13.18 (5.92) 10.94 14.91 Jul-97 9.33 14.41 27.41 28.78 Aug-97 (5.97) 13.55 20.23 21.85 Sep-97 1.85 13.80 4.70 16.06 28.37 Oct-97 0.36 13.85 5.97 28.96 Nov-97 1.01 13.99 (1.20) 29.06 Dec-97 4.57 14.63 6.01 7.49 7.49 27.22 Jan-98 (1.16) 14.46 2.48 20.00 Feb-98 0.41 14.52 1.75 28.72 Mar-98 1.31 14.71 0.55 5.00 28.81 Apr-98 (4.62) 14.03 3.16 17.21 May-98 3.28 14.49 10.70 25.89 Jun-98 (1.10) 14.33 (2.58) 8.73 20.62 Jul-98 (0.98) 14.19 (1.53) 25.46 Aug-98 10.29 15.65 15.50 38.86 Sep-98 4.35 16.33 13.96 18.33 37.34 Oct-98 (0.73) 16.21 17.04 24.02 Nov-98 (6.17) 15.21 8.72 7.42
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 182
SPECTRUM TECHNICAL HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Dec-98 5.98 16.12 (1.29) 10.18 10.18 18.44 Jan-99 (4.96) 15.32 5.95 8.58 Feb-99 2.48 15.70 8.13 10.02 Mar-99 (2.48) 15.31 (5.02) 4.08 9.28 Apr-99 7.18 16.41 16.96 20.66 May-99 (5.00) 15.59 7.59 19.10 Jun-99 5.13 16.39 7.05 14.38 24.36 Jul-99 (3.90) 15.75 10.99 9.30 Aug-99 0.95 15.90 1.60 17.34 Sep-99 (1.51) 15.66 (4.45) (4.10) 13.48 Oct-99 (9.96) 14.10 (13.02) 1.81 Nov-99 1.84 14.36 (5.59) 2.64 Dec-99 3.83 14.91 (4.79) (7.51) (7.51) 1.91 Jan-00 1.21 15.09 (1.50) 4.36 Feb-00 (1.19) 14.91 (5.03) 2.69 Mar-00 (1.54) 14.68 (1.54) (4.11) (0.20) Apr-00 (4.02) 14.09 (14.14) 0.43 May-00 (0.43) 14.03 (10.01) (3.17) Jun-00 (2.78) 13.64 (7.08) (16.78) (4.82) Jul-00 (3.96) 13.10 (16.83) (7.68) Aug-00 3.74 13.59 (14.53) (13.16) Sep-00 (8.61) 12.42 (8.94) (20.69) (23.94) Oct-00 2.90 12.78 (9.36) (21.16) Nov-00 12.28 14.35 (0.07) (5.65) Dec-00 12.06 16.08 29.47 7.85 7.85 (0.25) Compounded annual ROR: 8.01 Standard deviation of monthly returns: 4.76
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 183 The following chart was prepared to illustrate certain period peformance and statistical information relating to Spectrum Strategic, from the inception of trading in November 1994 through December 2000.
SPECTRUM STRATEGIC HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Beginning NAV per unit 10.00 Nov-94 0.10 10.01 Dec-94 0.00 10.01 0.10 0.10 Jan-95 (3.50) 9.66 Feb-95 1.45 9.80 Mar-95 7.86 10.57 5.59 Apr-95 0.00 10.57 May-95 (0.66) 10.50 Jun-95 (6.38) 9.83 (7.00) Jul-95 (0.81) 9.75 Aug-95 4.00 10.14 Sep-95 (0.39) 10.10 2.75 Oct-95 0.30 10.13 1.30 Nov-95 2.76 10.41 4.00 Dec-95 6.24 11.06 9.50 10.49 10.49 Jan-96 3.71 11.47 18.74 Feb-96 (10.29) 10.29 5.00 Mar-96 (0.97) 10.19 (7.87) (3.60) Apr-96 6.08 10.81 2.27 May-96 (3.05) 10.48 (0.19) Jun-96 (2.86) 10.18 (0.10) 3.56 Jul-96 (4.91) 9.68 (0.72) Aug-96 1.14 9.79 (3.45) Sep-96 5.11 10.29 1.08 1.88 Oct-96 2.92 10.59 4.54 5.90 Nov-96 3.49 10.96 5.28 9.49 Dec-96 (2.65) 10.67 3.69 (3.53) (3.53) 6.59 Jan-97 (0.66) 10.60 (7.59) 9.73 Feb-97 10.09 11.67 13.41 19.08 Mar-97 6.77 12.46 16.78 22.28 17.88 Apr-97 (6.90) 11.60 7.31 9.74 May-97 0.78 11.69 11.55 11.33 Jun-97 (1.63) 11.50 (7.70) 12.97 16.99 Jul-97 7.65 12.38 27.89 26.97 Aug-97 (4.93) 11.77 20.22 16.07 Sep-97 (6.03) 11.06 (3.83) 7.48 9.50 Oct-97 (6.24) 10.37 (2.08) 2.37 Nov-97 (2.22) 10.14 (7.48) (2.59) Dec-97 5.62 10.71 (3.16) 0.37 0.37 (3.16) Jan-98 5.32 11.28 6.42 (1.66) Feb-98 (3.37) 10.90 (6.60) 5.93 Mar-98 0.37 10.94 2.15 (12.20) 7.36 Apr-98 (11.06) 9.73 (16.12) (9.99) May-98 (7.40) 9.01 (22.93) (14.03) Jun-98 (0.89) 8.93 (18.37) (22.35) (12.28) Jul-98 (5.26) 8.46 (31.66) (12.60) Aug-98 11.82 9.46 (19.63) (3.37) Sep-98 19.03 11.26 26.09 1.81 9.43 Oct-98 8.44 12.21 17.74 15.30
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 184
SPECTRUM STRATEGIC HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Nov-98 (7.94) 11.24 10.85 2.55 Dec-98 2.76 11.55 2.58 7.84 7.84 8.25 Jan-99 (3.55) 11.14 (1.24) 5.09 Feb-99 11.76 12.45 14.22 6.68 Mar-99 (3.45) 12.02 4.07 9.87 (3.53) Apr-99 2.00 12.26 26.00 5.69 May-99 (13.38) 10.62 17.87 (9.15) Jun-99 21.85 12.94 7.65 44.90 12.52 Jul-99 (1.00) 12.81 51.42 3.47 Aug-99 5.31 13.49 42.60 14.61 Sep-99 13.27 15.28 18.08 35.70 38.16 Oct-99 (9.55) 13.82 13.19 33.27 Nov-99 4.85 14.49 28.91 42.90 Dec-99 9.39 15.85 3.73 37.23 37.23 47.99 Jan-00 (1.96) 15.54 39.50 37.77 Feb-00 (18.47) 12.67 1.77 16.24 Mar-00 (2.05) 12.41 (21.70) 3.24 13.44 Apr-00 (10.15) 11.15 (9.05) 14.59 May-00 10.13 12.28 15.63 36.29 Jun-00 (7.82) 11.32 (8.78) (12.52) 26.76 Jul-00 3.71 11.74 (8.35) 38.77 Aug-00 (8.26) 10.77 (20.16) 13.85 Sep-00 (10.40) 9.65 (14.75) (36.85) (14.30) Oct-00 (6.84) 8.99 (34.95) (26.37) Nov-00 6.56 9.58 (33.89) (14.77) Dec-00 10.75 10.61 9.95 (33.06) (33.06) (8.14) Compounded annual ROR: 0.96 Standard deviation of monthly returns: 7.36
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 185 The following chart was prepared to illustrate certain period peformance and statistical information relating to Spectrum Global Balanced, from the inception of trading in November 1994 through December 2000.
SPECTRUM GLOBAL BALANCED HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.50) 9.95 Dec-94 (1.21) 9.83 (1.70) (1.70) Jan-95 1.32 9.96 Feb-95 4.62 10.42 Mar-95 2.88 10.72 9.05 Apr-95 2.15 10.95 May-95 4.38 11.43 Jun-95 0.79 11.52 7.46 Jul-95 (1.39) 11.36 Aug-95 (1.41) 11.20 Sep-95 1.61 11.38 (1.22) Oct-95 0.26 11.41 14.10 Nov-95 2.72 11.72 17.79 Dec-95 2.99 12.07 6.06 22.79 22.79 Jan-96 0.41 12.12 21.69 Feb-96 (7.92) 11.16 7.10 Mar-96 (1.08) 11.04 (8.53) 2.99 Apr-96 1.27 11.18 2.10 May-96 (3.13) 10.83 (5.25) Jun-96 0.46 10.88 (1.45) (5.56) Jul-96 0.83 10.97 (3.43) Aug-96 (0.82) 10.88 (2.86) Sep-96 2.30 11.13 2.30 (2.20) Oct-96 3.77 11.55 1.23 15.50 Nov-96 4.76 12.10 3.24 21.61 Dec-96 (3.88) 11.63 4.49 (3.65) (3.65) 18.31 Jan-97 3.35 12.02 (0.83) 20.68 Feb-97 3.16 12.40 11.11 19.00 Mar-97 (2.50) 12.09 3.96 9.51 12.78 Apr-97 (1.65) 11.89 6.35 8.58 May-97 1.68 12.09 11.63 5.77 Jun-97 3.64 12.53 3.64 15.17 8.77 Jul-97 11.89 14.02 27.80 23.42 Aug-97 (5.92) 13.19 21.23 17.77 Sep-97 3.26 13.62 8.70 22.37 19.68 Oct-97 (1.69) 13.39 15.93 17.35 Nov-97 (0.37) 13.34 10.25 13.82 Dec-97 3.07 13.75 0.95 18.23 18.23 13.92 Jan-98 2.25 14.06 16.97 16.01 Feb-98 1.49 14.27 15.08 27.87 Mar-98 2.24 14.59 6.11 20.68 32.16 Apr-98 (1.78) 14.33 20.52 28.18 May-98 (0.35) 14.28 18.11 31.86 Jun-98 0.00 14.28 (2.12) 13.97 31.25 Jul-98 (1.19) 14.11 0.64 28.62 Aug-98 2.55 14.47 9.70 33.00 Sep-98 5.11 15.21 6.51 11.67 36.66 Oct-98 1.18 15.39 14.94 33.25
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 186
SPECTRUM GLOBAL BALANCED HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Nov-98 2.66 15.80 18.44 30.58 Dec-98 1.27 16.00 5.19 16.36 16.36 37.58 Jan-99 (0.06) 15.99 13.73 33.03 Feb-99 (0.06) 15.98 11.98 28.87 Mar-99 0.00 15.98 (0.12) 9.53 32.18 Apr-99 4.13 16.64 16.12 39.95 May-99 (4.99) 15.81 10.71 30.77 Jun-99 2.28 16.17 1.19 13.24 29.05 Jul-99 (1.67) 15.90 12.69 13.41 Aug-99 (0.19) 15.87 9.68 20.32 Sep-99 (0.50) 15.79 (2.35) 3.81 15.93 Oct-99 (1.77) 15.51 0.78 15.83 Nov-99 1.93 15.81 0.06 18.52 Dec-99 1.96 16.12 2.09 0.75 0.75 17.24 Jan-00 (0.93) 15.97 (0.13) 13.58 Feb-00 0.94 16.12 0.88 12.96 Mar-00 3.10 16.62 3.10 4.01 13.91 Apr-00 (4.57) 15.86 (4.69) 10.68 May-00 (1.32) 15.65 (1.01) 9.59 Jun-00 (0.26) 15.61 (6.08) (3.46) 9.31 Jul-00 (2.18) 15.27 (3.96) 8.22 Aug-00 3.01 15.73 (0.88) 8.71 Sep-00 (3.94) 15.11 (3.20) (4.31) (0.66) Oct-00 2.25 15.45 (0.39) 0.39 Nov-00 (0.52) 15.37 (2.78) (2.72) Dec-00 5.79 16.26 7.61 0.87 0.87 1.63 Compounded annual ROR: 8.20 Standard deviation of monthly returns: 2.98
The following chart was prepared to illustrate certain period performance and statistical information relating to Spectrum Currency, from inception of trading in July 2000 through December 2000.
SPECTRUM CURRENCY HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Beginning NAV per unit................ 10.00 Jul-00.................. 0.60 10.06 Aug-00.................. 0.40 10.10 Sep-00.................. 1.39 10.24 2.40 Oct-00.................. 7.32 10.99 Nov-00.................. (1.64) 10.81 Dec-00.................. 3.33 11.17 9.08 11.70 Compounded annual ROR: N/A Standard deviation of monthly returns: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 187 The following chart was prepared to illustrate certain period peformance and statistical information relating to Spectrum Commodity, from the inception of trading in January 1998 through December 1999.
SPECTRUM COMMODITY HISTORICAL PERFORMANCE - -------------------------------------------------------------------------------------------------------- 12 MO. 24 MO. MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD ----- -------- -------- -------- -------- -------- -------- % $ % % % % Beginning NAV per unit 10.00 Jan-98 1.30 10.13 Feb-98 (5.92) 9.53 Mar-98 0.10 9.54 (4.60) Apr-98 (2.41) 9.31 May-98 (6.87) 8.67 Jun-98 (3.23) 8.39 (12.05) Jul-98 (6.44) 7.85 Aug-98 (7.90) 7.23 Sep-98 7.19 7.75 (7.63) Oct-98 (3.48) 7.48 Nov-98 (9.09) 6.80 Dec-98 (3.38) 6.57 (15.23) (34.30) (34.30) Jan-99 (1.52) 6.47 (36.13) Feb-99 (3.86) 6.22 (34.73) Mar-99 8.68 6.76 2.89 (29.14) Apr-99 2.37 6.92 (25.67) May-99 (5.92) 6.51 (24.91) Jun-99 4.45 6.80 0.59 (18.95) Jul-99 0.44 6.83 (12.99) Aug-99 6.15 7.25 0.28 Sep-99 4.55 7.58 11.47 (2.19) Oct-99 (2.77) 7.37 (1.47) Nov-99 0.54 7.41 8.97 Dec-99 2.70 7.61 0.40 15.83 15.83 (23.90) Jan-00.................. 3.02 7.84 21.17 (22.61) Feb-00.................. (3.19) 7.59 22.03 (20.36) Mar-00.................. 0.79 7.65 0.53 13.17 (19.81) Apr-00.................. (3.01) 7.42 7.23 (20.30) May-00.................. 4.31 7.74 18.89 (10.73) Jun-00.................. (0.90) 7.67 0.26 12.79 (8.58) Jul-00.................. (3.65) 7.39 8.20 (5.86) Aug-00.................. 4.74 7.74 6.76 7.05 Sep-00.................. (0.52) 7.70 0.39 1.58 (0.65) Oct-00.................. (2.86) 7.48 1.49 0.00 Nov-00.................. 3.74 7.76 4.72 14.12 Dec-00.................. 1.16 7.85 1.95 3.15 3.15 19.48 Compounded annual ROR: (7.75) Standard deviation of monthly returns: 4.42
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 188 GLOSSARY OF TERMS The following glossary may assist prospective investors in understanding certain terms used in this prospectus: CLEARING BROKER. The entity responsible for assuring that futures and options trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trades took place. COMMODITY BROKER. The entity responsible for holding the client's funds deposited with it as margin for the trades and, if the commodity broker is also a clearing commodity broker, for assuring that futures and options trades for a client are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. In the U.S. commodity brokers are registered under the Commodity Exchange Act as futures commission merchants. COMMODITY POOL. A partnership, trust or similar form of collective investment vehicle which consolidates funds from investors for the purpose of trading in commodity futures, forward, and options contracts. COMMODITY POOL OPERATOR. Any person or entity that solicits funds in connection with the sale of interests in a commodity pool or that manages the operations of a commodity pool. A commodity pool operator must register under the Commodity Exchange Act. COUNTER-TREND LIQUIDATIONS. Closing out a position after a significant price move on the assumption that the market is due for a correction. CROSS RATE. The trading of one foreign currency against another foreign currency. DAILY PRICE FLUCTUATION LIMIT. The maximum permitted fluctuation imposed by commodity exchanges in the price of a commodity futures contract for a given commodity that can occur on an exchange on a given day in relation to the previous day's settlement price, which maximum permitted fluctuation is subject to change from time to time by the exchange. These limits generally are not imposed on option contracts or outside the U.S. DELIVERY. The process of satisfying a futures contract or a forward contract by transferring ownership of a specified quantity and grade of a commodity, product, or instrument to the purchaser of the contract. EXCHANGE FOR PHYSICAL. A transaction permitted under the rules of futures exchanges in which two parties exchange a cash market (physical) commodity position for a futures contract (or vice versa) without making a trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. FORWARD CONTRACT. A cash market transaction in which the buyer and seller agree to the purchase and sale of a specific quantity of a commodity, product, instrument, or currency for delivery at some future time under such terms and conditions as the two may agree upon. FUNDAMENTAL ANALYSIS. The analysis of fundamental market information such as supply and demand levels, weather, economic indicators, and geopolitical events. FUTURES CONTRACT. A contract providing for the delivery or receipt at a future date of a specified amount and grade of a traded commodity, product, instrument, or index at a specified price and delivery point, or for cash settlement. A market participant can make a futures contract to buy or sell the underlying commodity, product, instrument, or index. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of the commodity, product, instrument, or index or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. LONG CONTRACT OR LONG POSITION. A contract to accept delivery (I.E., to buy) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. MARGIN. A good faith deposit with a broker to assure fulfillment of a purchase or sale of a futures, forward or options contract. Margins on these contracts do not usually involve the payment of interest. 189 MARGIN CALL. A demand for additional funds after the initial good faith deposit required to maintain a customer's account in compliance with the requirements of a particular commodity exchange or of a commodity broker. NON-SPECTRUM SERIES EXCHANGE. The use of proceeds from the redemption of interests from another commodity pool for which Dean Witter acts as general partner and commodity pool operator to acquire units in one or more of the Spectrum Series partnerships. NOTIONAL FUNDS. The amount by which the nominal account size exceeds the amount of actual funds in the account. OPEN POSITION. A contractual commitment arising under a long contract or a short contract that has not been extinguished by an offsetting trade or by delivery. OPTION ON A FUTURES CONTRACT. A contract that gives the purchaser of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract, if the option is exercised, at the specified price within the specified period of time. OUTRIGHTS. The trading of one foreign currency against the U.S. dollar as compared to a cross rate trade between two non-U.S. currencies. PARAMETERS. A value that can be freely assigned in a trading system in order to vary the timing of signals. PATTERN RECOGNITION. The ability to identify patterns that appeared to act as precursors of price advances or declines in the past. RESISTANCE. A previous high. A price level above the market where selling pressure overcomes buying pressure and a price advance is turned back. SECULAR TREND. Intermediate upswings and downswings in price that over a long period of time constitutes a big move. SHORT CONTRACT OR SHORT POSITION. A contract to make delivery of (sell) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. SPECTRUM SERIES EXCHANGE. A redemption of units in a Spectrum Series Partnership with the proceeds used to purchase units of one or more of the other partnerships in the Spectrum Series. SPECULATIVE POSITION LIMIT. The maximum number of speculative futures or option contracts in any one commodity (on one exchange), imposed by the CFTC or a U.S. commodity exchange, that can be held or controlled at one time by one person or a group of persons acting together. These limits generally are not imposed for trading on markets or exchanges outside the U.S. STOP-LOSS ORDER. An order to buy or sell at the market when a definite price is reached, either above or below the price of the instrument that prevailed when the order was given. SUPPORT. A previous low. A price level below the market where buying interest is sufficiently strong to overcome selling pressure. SYSTEMATIC TECHNICAL CHARTING SYSTEMS. A system that is technical in nature and based on chart patterns as opposed to pure mathematical calculations. TECHNICAL ANALYSIS. The analysis of technical market information by a trading advisor, such as analyzing actual daily, weekly, and monthly price fluctuations, trading volume variations, and changes in numbers of open positions in various futures and options contracts. TRADING ADVISOR. Any person or entity that provides advice as to the purchase or sale of futures, forwards, or options contracts. A commodity trading advisor must register under the Commodity Exchange Act. 190 INDEPENDENT AUDITORS' REPORT To the Limited Partners and the General Partner of Morgan Stanley Dean Witter Spectrum Commodity L.P. (formerly, Morgan Stanley Tangible Asset Fund L.P.) Morgan Stanley Dean Witter Spectrum Currency L.P. Morgan Stanley Dean Witter Spectrum Global Balanced L.P. Morgan Stanley Dean Witter Spectrum Select L.P. Morgan Stanley Dean Witter Spectrum Strategic L.P. Morgan Stanley Dean Witter Spectrum Technical L.P.: We have audited the accompanying statements of financial condition of Morgan Stanley Dean Witter Spectrum Currency L.P. ("Spectrum Currency") as of December 31, 2000 and of Morgan Stanley Dean Witter Spectrum Commodity L.P. (formerly, Morgan Stanley Tangible Asset Fund L.P.) ("Spectrum Commodity"), Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., and Morgan Stanley Dean Witter Spectrum Technical L.P. (collectively, the "Partnerships") as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' capital, and cash flows for the period from July 3, 2000 (commencement of operations) to December 31, 2000 for Spectrum Currency, for the period from January 2, 1998 (commencement of operations) to December 31, 1998 and the two years ended December 31, 2000 for Spectrum Commodity, and for each of the three years in the period ended December 31, 2000 for the other above mentioned Partnerships. These financial statements are the responsibility of the Partnerships' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Morgan Stanley Dean Witter Spectrum Currency L.P. as of December 31, 2000 and of Morgan Stanley Dean Witter Spectrum Commodity L.P., Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., and Morgan Stanley Dean Witter Spectrum Technical L.P. as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the period from July 3, 2000 (commencement of operations) to December 31, 2000 for Spectrum Currency, for the period from January 2, 1998 (commencement of operations) to December 31, 1998 and the two years ended December 31, 2000 for Spectrum Commodity, and for each of the three years in the period ended December 31, 2000 for the other above mentioned Partnerships, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche New York, New York February 16, 2001 F-1 MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, --------------------------- 2000 1999 ------------ ------------ $ $ ASSETS Equity in futures interests trading accounts: Cash 196,555,362 207,251,012 Net unrealized gain on open contracts (Morgan Stanley) 26,063,382 -- Net unrealized loss on open contracts (Morgan Stanley International) (511,085) -- Net unrealized gain on open contracts (Carr) -- 6,887,064 ------------ ------------ Total net unrealized gain on open contracts 25,552,297 6,887,064 Net option premiums -- 776,380 ------------ ------------ Total Trading Equity 222,107,659 214,914,456 Subscriptions receivable 1,583,941 3,730,051 Interest receivable (Dean Witter Reynolds) 889,954 722,305 ------------ ------------ Total Assets 224,581,554 219,366,812 ============ ============ LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,110,529 3,764,242 Accrued brokerage fees (Dean Witter Reynolds) 1,231,479 1,270,975 Accrued management fees 509,577 525,921 ------------ ------------ Total Liabilities 3,851,585 5,561,138 ------------ ------------ PARTNERS' CAPITAL Limited Partners (9,255,010.627 and 9,583,810.732 Units, respectively) 218,182,118 210,877,519 General Partner (108,076.600 and 133,076.700 Units, respectively) 2,547,851 2,928,155 ------------ ------------ Total Partners' Capital 220,729,969 213,805,674 ------------ ------------ Total Liabilities and Partners' Capital 224,581,554 219,366,812 ============ ============ NET ASSET VALUE PER UNIT 23.57 22.00 ============ ============
The accompanying notes are an integral part of these financial statements. F-2 MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, --------------------------- 2000 1999 ------------ ------------ $ $ ASSETS Equity in futures interests trading accounts: Cash 231,502,090 251,443,755 Net unrealized gain on open contracts (Morgan Stanley) 41,877,552 -- Net unrealized loss on open contracts (Morgan Stanley International) (1,835,243) -- Net unrealized gain on open contracts (Carr) -- 18,036,296 ----------- ----------- Total net unrealized gain on open contracts 40,042,309 18,036,296 Net option premiums -- (74,725) ----------- ----------- Total Trading Equity 271,544,399 269,405,326 Subscriptions receivable 1,087,585 3,926,914 Interest receivable (Dean Witter Reynolds) 1,063,044 900,955 ----------- ----------- Total Assets 273,695,028 274,233,195 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 3,432,384 3,057,593 Accrued brokerage fees (Dean Witter Reynolds) 1,458,126 1,559,481 Accrued management fees 559,827 860,403 Accrued incentive fee 111,599 -- ----------- ----------- Total Liabilities 5,561,936 5,477,477 ----------- ----------- PARTNERS' CAPITAL Limited Partners (16,479,195.979 and 17,836,873.576 Units, respectively) 265,060,579 265,907,998 General Partner (191,022.517) 3,072,513 2,847,720 ----------- ----------- Total Partners' Capital 268,133,092 268,755,718 ----------- ----------- Total Liabilities and Partners' Capital 273,695,028 274,233,195 =========== =========== NET ASSET VALUE PER UNIT 16.08 14.91 =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, --------------------------- 2000 1999 ------------ ------------ $ $ ASSETS Equity in futures interests trading accounts: Cash 73,445,827 97,808,328 Net unrealized gain on open contracts (Morgan Stanley) 1,936,658 -- Net unrealized gain on open contracts (Morgan Stanley International) 58,457 -- Net unrealized gain (loss) on open contracts (Carr) (8,983) 9,563,813 ----------- ----------- Total net unrealized gain on open contracts 1,986,132 9,563,813 Net option premiums 226,200 (11,653) ----------- ----------- Total Trading Equity 75,658,159 107,360,488 Subscriptions receivable 462,060 1,743,958 Interest receivable (Dean Witter Reynolds) 306,879 339,582 ----------- ----------- Total Assets 76,427,098 109,444,028 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 1,307,093 847,860 Accrued brokerage fees (Dean Witter Reynolds) 409,292 590,001 Accrued incentive fee 289,687 -- Accrued management fees 186,577 313,646 ----------- ----------- Total Liabilities 2,192,649 1,751,507 ----------- ----------- PARTNERS' CAPITAL Limited Partners (6,919,445.814 and 6,723,390.378 Units, respectively) 73,433,119 106,542,362 General Partner (75,507.615 and 72,581.141 Units, respectively) 801,330 1,150,159 ----------- ----------- Total Partners' Capital 74,234,449 107,692,521 ----------- ----------- Total Liabilities and Partners' Capital 76,427,098 109,444,028 =========== =========== NET ASSET VALUE PER UNIT 10.61 15.85 =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, -------------------------- 2000 1999 ----------- ------------ $ $ ASSETS Equity in futures interests trading accounts: Cash 52,414,304 56,904,921 Net unrealized gain on open contracts (Morgan Stanley) 3,384,377 -- Net unrealized loss on open contracts (Morgan Stanley International) (66,733) -- Net unrealized gain on open contracts (Carr) -- 810,114 ----------- ------------ Total net unrealized gain on open contracts 3,317,644 810,114 Net option premiums 192,500 -- ----------- ------------ Total Trading Equity 55,924,448 57,715,035 Subscriptions receivable 530,634 847,954 Interest receivable (Dean Witter Reynolds) 285,054 244,599 ----------- ------------ Total Assets 56,740,136 58,807,588 =========== ============ LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 602,490 667,741 Accrued brokerage fees (Dean Witter Reynolds) 202,789 216,895 Accrued management fees 55,107 58,940 ----------- ------------ Total Liabilities 860,386 943,576 ----------- ------------ PARTNERS' CAPITAL Limited Partners (3,396,880.702 and 3,549,239.387 Units, respectively) 55,220,008 57,209,838 General Partner (40,584.304 Units) 659,742 654,174 ----------- ------------ Total Partners' Capital 55,879,750 57,864,012 ----------- ------------ Total Liabilities and Partners' Capital 56,740,136 58,807,588 =========== ============ NET ASSET VALUE PER UNIT 16.26 16.12 =========== ============
The accompanying notes are an integral part of these financial statements. F-5 MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2000 ------------ $ ASSETS Equity in futures interests trading accounts: Cash 14,391,541 Net unrealized gain on open contracts (Morgan Stanley) 555,569 ---------- Total Trading Equity 14,947,110 Subscriptions receivable 3,054,150 Interest receivable (Dean Witter Reynolds) 55,464 ---------- Total Assets 18,056,724 ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,237,351 Accrued brokerage fee (Dean Witter Reynolds) 55,245 Accrued incentive fee 32,876 Accrued management fee 24,020 ---------- Total Liabilities 2,349,492 ---------- PARTNERS' CAPITAL Limited Partners (1,252,545.441 Units) 13,988,414 General Partner (153,905.792 Units) 1,718,818 ---------- Total Partners' Capital 15,707,232 ---------- Total Liabilities and Partners' Capital 18,056,724 ========== NET ASSET VALUE PER UNIT 11.17 ==========
The accompanying notes are an integral part of these financial statements. F-6 MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.) STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ------------------------- 2000 1999 ----------- ----------- $ $ ASSETS Equity in futures interests trading accounts: Cash 20,529,979 23,430,137 Net unrealized gain (loss) on open contracts (Morgan Stanley) (185,379) (100,830) Net unrealized gain (loss) on open contracts (Morgan Stanley International) 160,096 643,258 ---------- ---------- Total net unrealized gain (loss) on open contracts (25,283) 542,428 ---------- ---------- Total Trading Equity 20,504,696 23,972,565 Subscriptions receivable 215,897 -- Interest receivable (Dean Witter Reynolds and Morgan Stanley) 89,128 76,192 ---------- ---------- Total Assets 20,809,721 24,048,757 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 489,923 269,545 Accrued brokerage fees (Dean Witter Reynolds and Morgan Stanley) 77,628 70,827 Accrued management fees (Morgan Stanley Dean Witter Commodities Management) 42,189 48,511 Service fee (Demeter) -- 19,404 ---------- ---------- Total Liabilities 609,740 408,287 ---------- ---------- PARTNERS' CAPITAL Limited Partners (2,530,392.671 and 3,062,471.522 Units, respectively) 19,859,397 23,310,162 General Partner (43,395.648 Units) 340,584 330,308 ---------- ---------- Total Partners' Capital 20,199,981 23,640,470 ---------- ---------- Total Liabilities and Partners' Capital 20,809,721 24,048,757 ========== ========== NET ASSET VALUE PER UNIT 7.85 7.61 ========== ==========
The accompanying notes are an integral part of these financial statements. F-7 MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- $ $ $ REVENUES Trading profit (loss): Realized 6,845,291 (1,351,849) 36,087,729 Net change in unrealized 18,665,233 (1,547,990) (1,192,107) ---------- ----------- ---------- Total Trading Results 25,510,524 (2,899,839) 34,895,622 Interest income (Dean Witter Reynolds) 9,573,095 7,678,789 6,883,110 ---------- ----------- ---------- Total Revenues 35,083,619 4,778,950 41,778,732 ---------- ----------- ---------- EXPENSES Brokerage fees (Dean Witter Reynolds) 14,706,945 15,188,479 11,360,166 Management fees 6,085,629 6,284,885 5,202,158 Incentive fees -- -- 1,832,021 Transaction fees and costs -- -- 625,327 Administrative expenses -- -- 64,000 ---------- ----------- ---------- Total Expenses 20,792,574 21,473,364 19,083,672 ---------- ----------- ---------- NET INCOME (LOSS) 14,291,045 (16,694,414) 22,695,060 ========== =========== ========== Net Income (Loss) Allocation: Limited Partners 14,165,099 (16,455,697) 22,302,202 General Partner 125,946 (238,717) 392,858 Net Income (Loss) per Unit (Note 1): Limited Partners 1.57 (1.80) 2.95 General Partner 1.57 (1.80) 2.95
The accompanying notes are an integral part of these financial statements. F-8 MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- $ $ $ REVENUES Trading profit (loss): Realized 12,255,064 726,179 35,224,194 Net change in unrealized 22,006,013 (872,972) 6,612,556 ---------- ----------- ---------- Total Trading Results 34,261,077 (146,793) 41,836,750 Interest income (Dean Witter Reynolds) 11,613,896 9,593,178 8,103,423 ---------- ----------- ---------- Total Revenues 45,874,973 9,446,385 49,940,173 ---------- ----------- ---------- EXPENSES Brokerage fees (Dean Witter Reynolds) 17,835,223 19,176,380 15,543,787 Management fees 9,595,464 10,580,071 8,403,764 Incentive fees 166,085 430,097 3,191,252 ---------- ----------- ---------- Total Expenses 27,596,772 30,186,548 27,138,803 ---------- ----------- ---------- NET INCOME (LOSS) 18,278,201 (20,740,163) 22,801,370 ========== =========== ========== Net Income (Loss) Allocation: Limited Partners 18,053,408 (20,531,494) 22,571,217 General Partner 224,793 (208,669) 230,153 Net Income (Loss) per Unit: Limited Partners 1.17 (1.21) 1.49 General Partner 1.17 (1.21) 1.49
The accompanying notes are an integral part of these financial statements. F-9 MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- $ $ $ REVENUES Trading profit (loss): Realized (23,193,914) 32,274,037 7,945,575 Net change in unrealized (7,577,681) 4,264,478 2,771,722 ----------- ---------- ---------- Total Trading Results (30,771,595) 36,538,515 10,717,297 Interest income (Dean Witter Reynolds) 3,832,634 3,017,103 2,379,478 ----------- ---------- ---------- Total Revenues (26,938,961) 39,555,618 13,096,775 ----------- ---------- ---------- EXPENSES Brokerage fees (Dean Witter Reynolds) 5,798,093 5,837,887 4,402,540 Management fees 2,880,999 3,137,509 2,342,447 Incentive fees 1,269,237 2,451,152 1,336,693 ----------- ---------- ---------- Total Expenses 9,948,329 11,426,548 8,081,680 ----------- ---------- ---------- NET INCOME (LOSS) (36,887,290) 28,129,070 5,015,095 =========== ========== ========== Net Income (Loss) Allocation: Limited Partners (36,503,461) 27,829,050 4,958,188 General Partner (383,829) 300,020 56,907 Net Income (Loss) per Unit: Limited Partners (5.24) 4.30 .84 General Partner (5.24) 4.30 .84
The accompanying notes are an integral part of these financial statements. F-10 MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 ---------- ---------- --------- $ $ $ REVENUES Trading profit (loss): Realized (2,091,009) 2,425,585 5,113,920 Net change in unrealized 2,507,530 (1,157,073) 1,285,628 ---------- ---------- --------- Total Trading Results 416,521 1,268,512 6,399,548 Interest income (Dean Witter Reynolds) 3,275,958 2,385,751 1,642,542 ---------- ---------- --------- Total Revenues 3,692,479 3,654,263 8,042,090 ---------- ---------- --------- EXPENSES Brokerage fees (Dean Witter Reynolds) 2,558,008 2,387,515 1,591,467 Management fees 695,117 648,787 422,960 Incentive fees -- 215,651 449,775 ---------- ---------- --------- Total Expenses 3,253,125 3,251,953 2,464,202 ---------- ---------- --------- NET INCOME 439,354 402,310 5,577,888 ========== ========== ========= Net Income Allocation: Limited Partners 433,786 397,258 5,518,127 General Partner 5,568 5,052 59,761 Net Income per Unit: Limited Partners 0.14 0.12 2.25 General Partner 0.14 0.12 2.25
The accompanying notes are an integral part of these financial statements. F-11 MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 3, 2000 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2000 ------------------- $ REVENUES Trading profit: Realized 1,126,201 Net change in unrealized 555,569 ----------- Total Trading Results 1,681,770 Interest income (Dean Witter Reynolds) 236,461 ----------- Total Revenues 1,918,231 ----------- EXPENSES Brokerage fees (Dean Witter Reynolds) 249,571 Incentive fees 188,423 Management fees 171,693 ----------- Total Expenses 609,687 ----------- NET INCOME 1,308,544 =========== Net Income Allocation: Limited Partners 1,134,371 General Partner 174,173 Net Income Per Unit: Limited Partners 1.17 General Partner 1.17
The accompanying notes are an integral part of these financial statements. F-12 MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY MORGAN STANLEY TANGIBLE ASSET FUND L.P.) STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM FOR THE YEARS ENDED JANUARY 2, 1998 DECEMBER 31, (COMMENCEMENT OF ------------------------- OPERATIONS) TO 2000 1999 DECEMBER 31, 1998 --------- --------- ------------------- $ $ $ REVENUES Trading profit (loss): Realized 1,696,824 3,003,270 (11,870,063) Net change in unrealized (567,711) 1,178,071 (635,643) --------- --------- ----------- Total Trading Results 1,129,113 4,181,341 (12,505,706) Interest income (Dean Witter Reynolds and Morgan Stanley) 1,047,350 864,383 1,265,793 --------- --------- ----------- Total Revenues 2,176,463 5,045,724 (11,239,913) --------- --------- ----------- EXPENSES Brokerage fees (Dean Witter Reynolds and Morgan Stanley) 949,310 852,484 1,176,024 Management fees (Morgan Stanley Dean Witter Commodities Management) 546,187 583,893 805,496 Service fees (Demeter) 58,604 233,558 322,198 --------- --------- ----------- Total Expenses 1,554,101 1,669,935 2,303,718 --------- --------- ----------- NET INCOME (LOSS) 622,362 3,375,789 (13,543,631) ========= ========= =========== Net Income (Loss) Allocation: Limited Partners 612,086 3,330,798 (13,398,948) General Partner 10,276 44,991 (144,683) Net Income (Loss) Per Unit: Limited Partners .24 1.04 (3.43) General Partner .24 1.04 (3.43)
The accompanying notes are an integral part of these financial statements. F-13 MORGAN STANLEY DEAN WITTER SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ------------ --------- ------------ NOTE 1 $ $ $ MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. Partners' Capital, December 31, 1997 8,000,551.600 163,999,307 2,774,014 166,773,321 Offering of Units 1,310,353.729 30,297,590 -- 30,297,590 Net income -- 22,302,202 392,858 22,695,060 Redemptions (903,138.578) (19,683,455) -- (19,683,455) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 8,407,766.751 196,915,644 3,166,872 200,082,516 Offering of Units 2,238,093.744 51,589,367 -- 51,589,367 Net loss -- (16,455,697) (238,717) (16,694,414) Redemptions (928,973.063) (21,171,795) -- (21,171,795) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 9,716,887.432 210,877,519 2,928,155 213,805,674 Offering of Units 1,339,972.159 28,581,403 -- 28,581,403 Net income -- 14,165,099 125,946 14,291,045 Redemptions (1,693,772.364) (35,441,903) (506,250) (35,948,153) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2000 9,363,087.227 218,182,118 2,547,851 220,729,969 ============== =========== ========= =========== UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ------------ --------- ------------ $ $ $ MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. Partners' Capital, December 31, 1997 12,434,700.738 180,099,271 1,851,236 181,950,507 Offering of Units 4,731,996.876 69,886,681 565,000 70,451,681 Net income -- 22,571,217 230,153 22,801,370 Redemptions (1,342,497.646) (20,102,124) -- (20,102,124) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 15,824,199.968 252,455,045 2,646,389 255,101,434 Offering of Units 3,976,153.731 61,073,132 410,000 61,483,132 Net loss -- (20,531,494) (208,669) (20,740,163) Redemptions (1,772,457.606) (27,088,685) -- (27,088,685) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 18,027,896.093 265,907,998 2,847,720 268,755,718 Offering of Units 2,110,290.038 29,668,693 -- 29,668,693 Net income -- 18,053,408 224,793 18,278,201 Redemptions (3,467,967.635) (48,569,520) -- (48,569,520) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2000 16,670,218.496 265,060,579 3,072,513 268,133,092 ============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements. F-14 MORGAN STANLEY DEAN WITTER SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ------------ --------- ------------ $ $ $ MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. Partners' Capital, December 31, 1997 5,517,887.455 58,482,349 613,232 59,095,581 Offering of Units 1,610,245.841 16,662,471 80,000 16,742,471 Net income -- 4,958,188 56,907 5,015,095 Redemptions (1,031,933.595) (10,431,372) -- (10,431,372) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 6,096,199.701 69,671,636 750,139 70,421,775 Offering of Units 1,300,877.987 16,846,544 100,000 16,946,544 Net income -- 27,829,050 300,020 28,129,070 Redemptions (601,106.169) (7,804,868) -- (7,804,868) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 6,795,971.519 106,542,362 1,150,159 107,692,521 Offering of Units 1,467,043.314 17,566,488 35,000 17,601,488 Net loss -- (36,503,461) (383,829) (36,887,290) Redemptions (1,268,061.404) (14,172,270) -- (14,172,270) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2000 6,994,953.429 73,433,119 801,330 74,234,449 ============== =========== ========= =========== UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ------------ --------- ------------ $ $ $ MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. Partners' Capital, December 31, 1997 1,868,284.841 25,418,875 264,361 25,683,236 Offering of Units 1,205,176.553 17,447,965 190,000 17,637,965 Net income -- 5,518,127 59,761 5,577,888 Redemptions (204,387.889) (2,985,217) -- (2,985,217) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 2,869,073.505 45,399,750 514,122 45,913,872 Offering of Units 1,019,759.235 16,184,278 135,000 16,319,278 Net income -- 397,258 5,052 402,310 Redemptions (299,009.049) (4,771,448) -- (4,771,448) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 3,589,823.691 57,209,838 654,174 57,864,012 Offering of Units 568,088.752 8,983,545 -- 8,983,545 Net income -- 433,786 5,568 439,354 Redemptions (720,447.437) (11,407,161) -- (11,407,161) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2000 3,437,465.006 55,220,008 659,742 55,879,750 ============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements. F-15 MORGAN STANLEY DEAN WITTER SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIOD FROM JULY 3, 2000 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2000
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL ------------- ----------- --------- ----------- $ $ $ MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. Partners' Capital, July 3, 2000 2.000 10 10 20 Initial Offering 633,152.332 4,886,888 1,444,635 6,331,523 Offering of Units 980,783.417 10,281,803 100,000 10,381,803 Net income -- 1,134,371 174,173 1,308,544 Redemptions (207,486.516) (2,314,658) -- (2,314,658) ------------- ----------- --------- ----------- Partners' Capital, December 31, 2000 1,406,451.233 13,988,414 1,718,818 15,707,232 ============= =========== ========= ===========
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FROM JANUARY 2, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL ------------- ----------- --------- ----------- $ $ $ MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.) Partners' Capital, January 2, 1998 200.000 1,000 1,000 2,000 Initial Offering 2,573,486.803 25,475,868 259,000 25,734,868 Offering of Units 1,665,202.477 15,758,355 170,000 15,928,355 Net loss -- (13,398,948) (144,683) (13,543,631) Redemptions (450,424.580) (3,213,276) -- (3,213,276) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 3,788,464.700 24,622,999 285,317 24,908,316 Net income -- 3,330,798 44,991 3,375,789 Redemptions (682,597.530) (4,643,635) -- (4,643,635) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 3,105,867.170 23,310,162 330,308 23,640,470 Offering of Units 277,607.062 2,115,964 -- 2,115,964 Net income -- 612,086 10,276 622,362 Redemption (809,685.913) (6,178,815) -- (6,178,815) ------------- ----------- --------- ----------- Partners' Capital, December 31, 2000 2,573,788.319 19,859,397 340,584 20,199,981 ============= =========== ========= ===========
The accompanying notes are an integral part of these financial statements. F-16 MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 14,291,045 (16,694,414) 22,695,060 Noncash item included in net income (loss): Net change in unrealized (18,665,233) 1,547,990 1,192,107 (Increase) decrease in operating assets: Net option premiums 776,380 (776,380) -- Interest receivable (Dean Witter Reynolds) (167,649) (130,447) 46,346 Due from Dean Witter Reynolds -- -- 1,097,517 Increase (decrease) in operating liabilities: Accrued brokerage fees (Dean Witter Reynolds) (39,496) 106,631 1,164,344 Accrued management fees (16,344) 44,124 58,124 Accrued administrative expenses -- -- (72,499) ----------- ----------- ----------- Net cash provided by (used for) operating activities (3,821,297) (15,902,496) 26,180,999 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 28,581,403 51,589,367 30,297,590 (Increase) decrease in subscriptions receivable 2,146,110 2,291,656 (6,021,707) Increase (decrease) in redemptions payable (1,653,713) 2,824,861 (1,332,933) Redemptions of Units (35,948,153) (21,171,795) (19,683,455) ----------- ----------- ----------- Net cash provided by (used for) financing activities (6,874,353) 35,534,089 3,259,495 ----------- ----------- ----------- Net increase (decrease) in cash (10,695,650) 19,631,593 29,440,494 Balance at beginning of period 207,251,012 187,619,419 158,178,925 ----------- ----------- ----------- Balance at end of period 196,555,362 207,251,012 187,619,419 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-17 MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 18,278,201 (20,740,163) 22,801,370 Noncash item included in net income (loss): Net change in unrealized (22,006,013) 872,972 (6,612,556) (Increase) decrease in operating assets: Net option premiums (74,725) 74,725 -- Interest receivable (Dean Witter Reynolds) (162,089) (183,270) (60,123) Increase (decrease) in operating liabilities: Accrued brokerage fees (Dean Witter Reynolds) (101,355) 120,330 341,957 Accrued management fees (300,576) 66,388 220,319 Accrued incentive fees 111,599 -- (139,190) ----------- ----------- ----------- Net cash provided by (used for) operating activities (4,254,958) (19,789,018) 16,551,777 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 29,668,693 61,483,132 70,451,681 (Increase) decrease in subscriptions receivable 2,839,329 75,719 (1,037,012) Increase in redemptions payable 374,791 1,718,282 330,081 Redemptions of Units (48,569,520) (27,088,685) (20,102,124) ----------- ----------- ----------- Net cash provided by (used for) financing activities (15,686,707) 36,188,448 49,642,626 ----------- ----------- ----------- Net increase (decrease) in cash (19,941,665) 16,399,430 66,194,403 Balance at beginning of period 251,443,755 235,044,325 168,849,922 ----------- ----------- ----------- Balance at end of period 231,502,090 251,443,755 235,044,325 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-18 MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (36,887,290) 28,129,070 5,015,095 Noncash item included in net income (loss): Net change in unrealized 7,577,681 (4,264,478) (2,771,722) (Increase) decrease in operating assets: Net option premiums (237,853) 237,299 96,477 Interest receivable (Dean Witter Reynolds) 32,703 (134,335) 17,798 Increase (decrease) in operating liabilities: Accrued brokerage fees (Dean Witter Reynolds) (180,709) 184,395 45,565 Accrued incentive fee 289,687 -- -- Accrued management fees (127,069) 94,670 30,719 ----------- ---------- ----------- Net cash provided by (used for) operating activities (29,532,850) 24,246,621 2,433,932 ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 17,601,488 16,946,544 16,742,471 (Increase) decrease in subscriptions receivable 1,281,898 52,093 (962,792) Increase (decrease) in redemptions payable 459,233 448,884 (967,188) Redemptions of Units (14,172,270) (7,804,868) (10,431,372) ----------- ---------- ----------- Net cash provided by financing activities 5,170,349 9,642,653 4,381,119 ----------- ---------- ----------- Net increase (decrease) in cash (24,362,501) 33,889,274 6,815,051 Balance at beginning of period 97,808,328 63,919,054 57,104,003 ----------- ---------- ----------- Balance at end of period 73,445,827 97,808,328 63,919,054 =========== ========== ===========
The accompanying notes are an integral part of these financial statements. F-19 MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 439,354 402,310 5,577,888 Noncash item included in net income: Net change in unrealized (2,507,530) 1,157,073 (1,285,628) (Increase) in operating assets: Net option premiums (192,500) -- (458,150) Interest receivable (Dean Witter Reynolds) (40,455) (77,458) (48,192) Increase (decrease) in operating liabilities: Accrued brokerage fees (Dean Witter Reynolds) (14,106) 47,054 70,079 Accrued management fees (3,833) 12,787 20,703 Incentive fees payable -- (69,730) 69,730 ----------- ---------- ---------- Net cash provided by (used for) operating activities (2,319,070) 1,472,036 3,946,430 ----------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 8,983,545 16,319,278 17,637,965 (Increase) decrease in subscriptions receivable 317,320 315,143 (537,387) Increase (decrease) in redemptions payable (65,251) 549,551 3,614 Redemptions of Units (11,407,161) (4,771,448) (2,985,217) ----------- ---------- ---------- Net cash provided by (used for) financing activities (2,171,547) 12,412,524 14,118,975 ----------- ---------- ---------- Net increase (decrease) in cash (4,490,617) 13,884,560 18,065,405 Balance at beginning of period 56,904,921 43,020,361 24,954,956 ----------- ---------- ---------- Balance at end of period 52,414,304 56,904,921 43,020,361 =========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-20 MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 3, 2000 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2000 ------------------- $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 1,308,544 Noncash item included in net income: Net change in unrealized (555,569) (Increase) in operating assets: Interest receivable (Dean Witter Reynolds) (55,464) Increase in operating liabilities: Accrued brokerage fees (Dean Witter Reynolds) 55,245 Accrued incentive fees 32,876 Accrued management fees 24,020 ---------- Net cash provided by operating activities 809,652 ---------- CASH FLOWS FROM FINANCING ACTIVITIES Initial offering 6,331,543 Offering of Units 10,381,803 Increase in subscriptions receivable (3,054,150) Increase in redemptions payable 2,237,351 Redemptions of Units (2,314,658) ---------- Net cash provided by financing activities 13,581,889 ---------- Net increase in cash 14,391,541 Balance at beginning of period -- ---------- Balance at end of period 14,391,541 ==========
The accompanying notes are an integral part of these financial statements. F-21 MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.) STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM FOR THE YEARS JANUARY 2, 1998 ENDED DECEMBER 31, (COMMENCEMENT OF -------------------------- OPERATIONS) TO 2000 1999 DECEMBER 31, 1998 ----------- ----------- ------------------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 622,362 3,375,789 (13,543,631) Noncash item included in net income (loss): Net change in unrealized 567,711 (1,178,071) 635,643 (Increase) decrease in operating assets: Interest receivable (Dean Witter Reynolds and Morgan Stanley) (12,936) 2,530 (78,722) Increase (decrease) in operating liabilities: Accrued brokerage fees (Dean Witter Reynolds and Morgan Stanley) 6,801 (10,395) 81,222 Accrued management fees (Morgan Stanley Dean Witter Commodities Management) (6,322) (7,121) 55,632 Service fees payable (Demeter) (19,404) (2,849) 22,253 ---------- ---------- ----------- Net cash provided by (used for) operating activities 1,158,212 2,179,883 (12,827,603) ---------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Initial offering -- -- 25,736,868 Offering of units 2,115,964 -- 15,928,355 Increase in subscriptions receivable (215,897) -- -- Increase (decrease) in redemptions payable 220,378 (626,002) 895,547 Redemptions of Units (6,178,815) (4,643,635) (3,213,276) ---------- ---------- ----------- Net cash provided by (used for) financing activities (4,058,370) (5,269,637) 39,347,494 ---------- ---------- ----------- Net increase (decrease) in cash (2,900,158) (3,089,754) 26,519,891 Balance at beginning of period 23,430,137 26,519,891 -- ---------- ---------- ----------- Balance at end of period 20,529,979 23,430,137 26,519,891 ========== ========== ===========
The accompanying notes are an integral part of these financial statements. F-22 MORGAN STANLEY DEAN WITTER SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--Morgan Stanley Dean Witter Spectrum Commodity L.P. ("Spectrum Commodity"), Morgan Stanley Dean Witter Spectrum Currency L.P. ("Spectrum Currency"), Morgan Stanley Dean Witter Spectrum Global Balanced L.P. (formerly known as Dean Witter Spectrum Global Balanced L.P.) ("Spectrum Global Balanced"), Morgan Stanley Dean Witter Spectrum Select L.P. (formerly known as Dean Witter Spectrum Select L.P.) ("Spectrum Select"), Morgan Stanley Dean Witter Spectrum Strategic L.P. ("formerly known as Dean Witter Spectrum Strategic L.P.) ("Spectrum Strategic") and Morgan Stanley Dean Witter Spectrum Technical L.P. (formerly known as Dean Witter Spectrum Technical L.P.) ("Spectrum Technical"), (individually, a "Partnership," or collectively, the "Partnerships"), are limited partnerships organized to engage in the speculative trading of futures and forward contracts, options on futures contracts, physical commodities and other commodity interests, including, but not limited to foreign currencies, financial instruments, metals, energy and agricultural products (collectively, "futures interests"). The general partner for each Partnership is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Dean Witter Reynolds Inc. ("DWR"). Morgan Stanley & Co., Inc. ("MS&Co.") and Morgan Stanley & Co. International Limited ("MSIL") provide clearing and execution services. Prior to October 2000, Carr Futures Inc. ("Carr") provided clearing and execution services to Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical. Morgan Stanley Dean Witter Commodities Management, Inc. ("MSCM") is the trading advisor to Spectrum Commodity. Demeter, DWR, MS&Co, MSIL and MSCM are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). Spectrum Commodity became one of the Spectrum Series of funds effective March 6, 2000. Spectrum Currency commenced trading as of July 3, 2000. Spectrum Select became one of the Spectrum Series of funds effective June 1, 1998. Each outstanding unit of limited partnership interest ("Unit(s)") in Dean Witter Select Futures Fund L.P. was converted into 100 Units of Spectrum Select. The number of Units outstanding, net income or loss per Unit and Net Asset Value per Unit have been adjusted for all reporting periods to reflect this conversion. Effective February 19, 1998, Morgan Stanley, Dean Witter, Discover & Co. changed its corporate name to Morgan Stanley Dean Witter & Co. Demeter is required to maintain a 1% minimum interest in the equity of each Partnership and income (losses) are shared by Demeter and the Limited Partners based upon their proportional ownership interests. USE OF ESTIMATES--The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from those estimates. REVENUE RECOGNITION--Futures interests are open commitments until settlement date. They are valued at market on a daily basis and the resulting net change in unrealized gains and losses is reflected in the change in unrealized profits (losses) on open contracts from one period to the next in the statements of operations. Monthly, DWR pays each Partnership interest income based upon 80% of its average daily "Net Assets" (as defined in the limited partnership agreements) for the month in the case of Spectrum Commodity, Spectrum Currency, Spectrum Select, Spectrum Strategic and Spectrum Technical, and 100% in the case of Spectrum Global Balanced. The interest rate is equal to a prevailing rate on U.S. Treasury bills. For purposes of such interest payments, Net Assets do not include monies due the Partnership on futures interests, but not actually received. F-23 NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the weighted average number of Units outstanding during the period. EQUITY IN FUTURES INTERESTS TRADING ACCOUNTS--The Partnerships' asset "Equity in futures interests trading accounts," reflected in the statements of financial condition consists of (A) cash on deposit with DWR, MS&Co. and MSIL to be used as margin for trading; (B) net unrealized gains or losses on open contracts, which are valued at market and calculated as the difference between original contract value and market value, and (C) net option premiums, which represent the net of all monies paid and/or received for such option premiums. The Partnerships, in their normal course of business, enter into various contracts with MS&Co. and MSIL acting as their commodity brokers. Pursuant to brokerage agreements with MS&Co. and MSIL, to the extent that such trading results in unrealized gains or losses, these amounts are offset and reported on a net basis on the Partnerships' statements of financial condition. The Partnerships have offset the fair value amounts recognized for forward contracts executed with the same counterparty as allowable under terms of the master netting agreements with MS&Co., the sole counterparty on such contracts. The Partnerships have consistently applied their right to offset. BROKERAGE AND RELATED TRANSACTION FEES AND COSTS--The brokerage fee for Spectrum Commodity, Spectrum Currency and Spectrum Global Balanced is accrued at a flat monthly rate of 1/12 of 4.6% (a 4.6% annual rate) of Net Assets as of the first day of each month. Prior to March 6, 2000, brokerage fees for Spectrum Commodity were accrued at a monthly rate of 1/12 of 3.65% of Net Assets (a 3.65% annual rate) as of the first day of each month. Prior to June 1, 1998, brokerage fees for Spectrum Global Balanced were accrued at 49/120 of 1% of Net Assets (a 4.9% annual rate) as of the first day of each month. Brokerage fees for Spectrum Select, Spectrum Strategic and Spectrum Technical are accrued at a flat monthly rate of 1/12 of 7.25% (a 7.25% annual rate) of Net Assets as of the first day of each month. Prior to June 1, 1998, brokerage commissions for Spectrum Select were accrued on a half-turn basis at 80% of DWR's published non-member rates and transaction fees and costs were accrued on a half-turn basis. Brokerage commissions and transaction fees and costs combined were capped at 13/20 of 1% per month (a 7.8% maximum annual rate) of Spectrum Select's month-end Net Assets. Prior to June 1, 1998, brokerage fees for Spectrum Strategic and Spectrum Technical were accrued at 51/80 of 1% of the Net Assets (a 7.65% annual rate) as of the first day of each month. Such brokerage fees currently cover all brokerage commissions, transaction fees and costs and ordinary administrative and continuing offering expenses. SERVICE FEE--Prior to April 1, 2000, Spectrum Commodity paid Demeter a monthly fee equal to 1/12 of 1% per month (a 1% annual rate) of the Partnership's Net Assets as of the first day of each month. OPERATING EXPENSES--The Partnerships incur monthly management fees and may incur incentive fees. All common administrative and continuing offering expenses including legal, auditing, accounting, filing fees and other related expenses are borne by DWR through the brokerage fees paid by the Partnerships (effective June 1, 1998 for Spectrum Select with its change to a flat rate brokerage fee). Prior to June 1, 1998, Spectrum Select was charged all operating expenses related to its trading activities to a maximum of 1/4 of 1% annually of Spectrum Select's average month end Net Assets. Demeter was responsible for operating expenses in excess of the cap. INCOME TAXES--No provision for income taxes has been made in the accompanying financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of each Partnership's revenues and expenses for income tax purposes. DISTRIBUTIONS--Distributions, other than redemptions of Units, are made on a pro-rata basis at the sole discretion of Demeter. No distributions have been made to date. F-24 CONTINUING OFFERING--Units of each Partnership are offered at a price equal to 100% of the Net Asset Value per Unit as of the close of business on the last day of the month. No selling commissions or charges related to the continuing offering of Units will be paid by the Limited Partners or the Partnership. DWR will pay all such costs. REDEMPTIONS--Limited Partners may redeem some or all of their Units at 100% of the Net Asset Value per Unit as of the end of the last day of any month that is at least six months after the closing at which a person becomes a Limited Partner, upon five business days advance notice by redemption form to Demeter. Thereafter, Units redeemed on or prior to the last day of the twelfth month after such Units were purchased will be subject to a redemption charge equal to 2% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month after which such Units were purchased will be subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twenty-fourth month after which such Units were purchased will not be subject to a redemption charge. The foregoing redemption charges will be paid to DWR. Redemptions must be made in whole Units, in a minimum amount of 50 Units, unless a Limited Partner is redeeming his entire interest in a Partnership. EXCHANGES--On the last day of the first month which occurs more than six months after a person first becomes a Limited Partner in any of the Partnerships, and the end of each month thereafter, Limited Partners may exchange their investment among the Partnerships (subject to certain restrictions outlined in the Limited Partnership Agreement) without paying additional charges. DISSOLUTION OF THE PARTNERSHIP--Spectrum Commodity will terminate on December 31, 2027, Spectrum Currency, Spectrum Global Balanced, Spectrum Strategic and Spectrum Technical will terminate on December 31, 2035 and Spectrum Select will terminate on December 31, 2025 regardless of financial condition at such time, or at an earlier date if certain conditions occur as defined in each Partnership's Limited Partnership Agreement. 2. RELATED PARTY TRANSACTIONS The Partnerships pay brokerage fees to DWR as described in Note 1. Each Partnership's cash is on deposit with DWR, MS&Co. and MSIL in futures interests trading accounts to meet margin requirements as needed. DWR pays interest on these funds as described in Note 1. Spectrum Commodity paid Demeter a service fee prior to March 2000 and pays management fees, and when applicable, incentive fees to MSCM. 3. TRADING ADVISORS Demeter, on behalf of each Partnership, retains certain commodity trading advisors to make all trading decisions for the Partnerships. The trading advisors for each Partnership are as follows: Morgan Stanley Dean Witter Spectrum Commodity L.P. Morgan Stanley Dean Witter Commodities Management Inc. Morgan Stanley Dean Witter Spectrum Currency L.P. John W. Henry & Company, Inc. ("JWH") Sunrise Capital Partners, LLC ("Sunrise") Morgan Stanley Dean Witter Spectrum Global Balanced L.P. RXR, Inc. Morgan Stanley Dean Witter Spectrum Select L.P. EMC Capital Management, Inc. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Morgan Stanley Dean Witter Spectrum Strategic L.P. Allied Irish Capital Management, Ltd. ("AICM") Blenheim Investments, Inc. ("Blenheim") Eclipse Capital Management, Inc. ("Eclipse") F-25 Effective April 30, 1998, A. Gary Shilling & Co., Inc. ("Shilling") was terminated as an advisor to the Partnership. The assets of the Partnership previously allocated to Shilling were allocated to Stonebrook Capital Management Inc., ("Stonebrook"), effective June 1, 1998. Effective March 4, 1999, Stonebrook was terminated as an advisor to the Partnership. The assets of the Partnership previously allocated to Stonebrook were allocated to AICM, effective June 1, 1999. Effective April 14, 2000, Willowbridge Associates Inc. ("Willowbridge") was terminated as an advisor to the Partnership. The assets of the Partnership previously allocated to Willowbridge were allocated to Eclipse, effective June 26, 2000. Morgan Stanley Dean Witter Spectrum Technical L.P. Campbell & Company, Inc. ("Campbell") Chesapeake Capital Corporation ("Chesapeake") John W. Henry & Company, Inc. Compensation to the trading advisors by the Partnerships consists of a management fee and an incentive fee as follows: MANAGEMENT FEE--The management fee for Spectrum Commodity is accrued at the rate of 5/24 of 1% of Net Assets on the first day of each month (a 2.5% annual rate). The management fee for Spectrum Currency is accrued at the rate of 1/12 of 2% of Net Assets on the first day of each month (a 2% annual rate). Prior to December 1, 2000, the management fee was accrued at the rate of 1/3 of 1% of Net Assets allocated to JWH on the first day of each month and 1/4 of 1% of Net Assets allocated to Sunrise on the first day of each month (annual rates of 4% and 3%, respectively). The management fee for Spectrum Global Balanced is accrued at the rate of 5/48 of 1% per month of Net Assets on the first day of each month (a 1.25% annual rate). The management fee for Spectrum Select is accrued at the rate of 1/4 of 1% per month of Net Assets allocated to each trading advisor on the first day of each month (a 3% annual rate). Prior to June 1, 1998, the management fee was accrued at the rate of 1/4 of 1% of the Partnership's adjusted Net Assets, as defined in its limited partnership agreement, as of the last day of each month (a 3% annual rate). The management fee for Spectrum Strategic is accrued at the rate of 1/12 of 4% per month of Net Assets allocated to Blenheim on the first day of each month, and 1/12 of 3% per month of Net Assets allocated to AICM and Eclipse on the first day of each month (annual rates of 4% and 3%, respectively). Prior to June 1, 1998, the management fee was accrued at the rate of 1/3 of 1% of Net Assets allocated to Blenheim and Willowbridge on the first day of each month (a 4% annual rate). The management fee for Spectrum Technical is accrued at the rate of 1/12 of 2% of Net Assets allocated to JWH on the first day of each month, 1/12 of 3% of Net Assets allocated to Campbell on the first day of each month and 1/3 of 1% of Net Assets allocated to Chesapeake on the first day of each month (annual rates of 2%, 3% and 4% respectively). Prior to December 1, 2000 the management fee was accrued to each trading advisor at the rate of 1/3 of 1% of Net Assets on the first day of each month (a 4% annual rate). INCENTIVE FEE--Spectrum Commodity pays an annual incentive fee equal to 17.5% of Partnership trading profits, as determined from the end of the last period in which an incentive fee was earned. Prior to December 1, 2000, Spectrum Commodity paid an annual incentive fee to MSCM equal to 20% of the trading profits. Spectrum Currency pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to each trading advisor's allocated Net Assets as of the end of each month. Prior to December 1, 2000, Spectrum Currency paid a monthly incentive fee equal to 15% of the trading profits. Spectrum Global Balanced, Spectrum Select and Spectrum Strategic each pay a monthly incentive fee equal to 15% of the trading profits experienced with respect to each trading advisor's allocated Net Assets as of the end of each calendar month. Prior to June 1, 1998, Spectrum Select paid a quarterly incentive fee to each trading advisor equal to 17.5% of trading profits. F-26 Spectrum Technical pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to the Net Assets allocated to Campbell and JWH and 19% of trading profits experienced with respect to the Net Assets allocated to Chesapeake as of the end of each calendar month. Prior to June 1, 1998, Spectrum Technical paid an incentive fee equal to 15% of trading profits to Chesapeake. Prior to December 1, 2000, Spectrum Technical paid an incentive fee equal to 15% of trading profits to Campbell and JWH. Trading profits represent the amount by which profits from futures, forwards and options trading exceed losses after brokerage and management fees are deducted. Prior to June 1, 1998, trading profits for Spectrum Select represented the amount by which profits from futures, forwards and options trading exceeded losses, after brokerage commissions, management fees, administrative expenses and transaction fees and costs were paid. For all Partnerships when trading losses are incurred, no incentive fee will be paid in subsequent months until all such losses are recovered. Cumulative trading losses are adjusted on a pro-rata basis for the net amount of each months' subscriptions and redemptions. 4. FINANCIAL INSTRUMENTS The Partnerships trade futures and forward contracts, options on futures contracts, physical commodities and other commodity interests, including, but not limited to foreign currencies, financial instruments, metals, energy and agricultural products. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including interest rate volatility. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. The Partnership adopted the provisions of SFAS No. 133 beginning with the fiscal year ended December 31, 1998. SFAS No. 133 superceded SFAS Nos. 119 and 105, which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity that carries its assets at fair value. SFAS No. 133 was further amended by SFAS No. 138, which clarifies issues surrounding interest rate risk, foreign currency denominations, normal purchases and sales and net hedging. The application of SFAS No. 133, as amended by SFAS No. 137, and SFAS No. 138 did not have a significant effect on the Partnership's financial statements. SFAS No. 133 defines a derivative as a financial instrument or other contract that has all three of the following characteristics: (1) One or more underlying notional amounts or payment provisions; (2) Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; (3) Terms require or permit net settlement. Generally derivatives include futures, forwards, swaps or option contracts, and other financial instruments with similar characteristics such as caps, floors and collars. The net unrealized gains (losses) on open contracts is reported as a component of "Equity in futures interests trading accounts" on the statements of financial condition and totaled at December 31, 2000 and 1999, respectively, $(25,283) and $542,428 for Spectrum Commodity, $3,317,644 and $810,114 for Spectrum Global Balanced, $25,552,297 and $6,887,064 for Spectrum Select, $1,986,132 and $9,563,813 for Spectrum Strategic, and $40,042,309 and $18,036,296 for Spectrum Technical. For Spectrum Currency, the net realized gain totaled $555,569 at December 31, 2000. For Spectrum Commodity, the $25,283 net unrealized loss on open contracts at December 31, 2000 and the $542,428 net unrealized gain on open contracts at December 31, 1999 all related to exchange-traded futures contracts. F-27 For Spectrum Currency, the $555,569 net unrealized gain on open contracts at December 31, 2000 was related to off-exchange-traded forward currency contracts. For Spectrum Global Balanced, of the $3,317,644 net unrealized gain on open contracts at December 31, 2000, $3,374,178 related to exchange-traded futures contracts and $(56,534) related to off-exchange-traded forward currency contracts. Of the $810,114 net unrealized gain on open contracts at December 31, 1999, $669,640 related to exchange-traded futures contracts and $140,474 related to off-exchange-traded forward currency contracts. For Spectrum Select, of the $25,552,297 net unrealized gain on open contracts at December 31, 2000, $23,901,575 related to exchange-traded futures and futures-styled options contracts and $1,650,722 related to off-exchange-traded forward currency contracts. Of the $6,887,064 net unrealized gain on open contracts at December 31, 1999, $6,935,040 related to exchange-traded futures and futures-styled options contracts and $(47,976) related to off-exchange-traded forward currency contracts. For Spectrum Strategic, the $1,986,132 net unrealized gain on open contracts at December 31, 2000 and the $9,563,813 net unrealized gain on open contracts at December 31, 1999 all related to exchange-traded futures and futures-styled options contracts. For Spectrum Technical, of the $40,042,309 net unrealized gain on open contracts at December 31, 2000, $37,170,209 related to exchange-traded futures and futures-styled options contracts and $2,872,100 related to off-exchange-traded forward currency contracts. Of the $18,036,296 net unrealized gain on open contracts at December 31, 1999, $17,006,044 related to exchange-traded futures and futures-styled options contracts and $1,030,252 related to off-exchange-traded forward currency contracts. Exchange-traded contracts and off-exchange-traded forward currency contracts held by the Partnerships at December 2000 and 1999 mature as follows:
2000 1999 --------------- --------------- SPECTRUM COMMODITY Exchange-Traded Contracts April 2001 April 2000 SPECTRUM CURRENCY Off-Exchange-Traded Forward Currency Contracts March 2001 -- SPECTRUM GLOBAL BALANCED Exchange-Traded Contracts June 2001 June 2000 Off-Exchange-Traded Forward Currency Contracts March 2001 March 2000 SPECTRUM SELECT Exchange-Traded Contracts December 2001 December 2000 Off-Exchange-Traded Forward Currency Contracts March 2001 March 2000 SPECTRUM STRATEGIC Exchange-Traded Contracts December 2001 December 2001 SPECTRUM TECHNICAL Exchange-Traded Contracts December 2001 December 2000 Off-Exchange-Traded Forward Currency Contracts March 2001 March 2000
The Partnerships have credit risk associated with counterparty nonperformance. The credit risk associated with the instruments in which the Partnerships are involved is limited to the amounts reflected in the Partnerships' statements of financial condition. The Partnerships also have credit risk because DWR, MS&Co. and MSIL act as the futures commission merchants or the counterparties, with respect to most of the Partnerships' assets. Exchange-traded futures and futures-styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. Each of DWR, MS&Co. and MSIL, as a futures commission merchant for each Partnership's exchange-traded futures and futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission to segregate from their own assets, and for the sole benefit of their commodity customers, all funds held by them with respect to exchange-traded futures F-28 and futures-styled options contracts, including an amount equal to the net unrealized gain on all open futures and futures-styled options contracts, which funds, in the aggregate, totaled at December 31, 2000 and 1999 respectively, $20,504,696 and $23,972,565 for Spectrum Commodity, $55,788,482 and $57,574,561 for Spectrum Global Balanced, $220,456,937 and $214,186,052 for Spectrum Select, $75,431,959 and $107,372,141 for Spectrum Strategic and $268,672,299 and $268,449,799 for Spectrum Technical. For Spectrum Currency, the amount totaled $14,391,541 at December 31, 2000. With respect to the Partnerships' off-exchange-traded forward currency contracts, there are no daily settlements of variations in value nor is there any requirement that an amount equal to the net unrealized gain on open forward contracts be segregated. With respect to those off-exchange-traded forward currency contracts, the Partnerships are at risk to the ability of MS&Co., the sole counterparty on all of such contracts, to perform. Each Partnership has a netting agreement with MS&Co.. These agreements, which seek to reduce both the Partnerships' and MS&Co.'s exposure on off-exchange-traded forward currency contracts, should materially decrease the Partnerships' credit risk in the event of MS&Co.'s bankruptcy or insolvency. 5. LEGAL MATTERS The class actions first filed in 1996 in California and in New York State courts were each dismissed in 1999. However, in the New York State class action, plaintiffs appealed the trial court's dismissal of their case on March 3, 2000. On September 18 and 20, 1996 purported class actions were filed in the Supreme Court of the State of New York, New York County, 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., MSDW, Spectrum Select (under its original name, "Dean Witter Select Futures Fund L.P.") and certain other limited partnership commodity pools of which Demeter is the general partner and certain trading advisors to those pools. 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. The complaints sought unspecified amounts of compensatory and punitive damages and other relief. 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 filed a motion to dismiss the amended complaint with prejudice on February 1, 1999. By decision dated December 21, 1999, the New York Supreme Court dismissed the case with prejudice. However, on March 3, 2000 plaintiffs appealed the trial court's dismissal of their case. F-29 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Demeter Management Corporation We have audited the accompanying statements of financial condition of Demeter Management Corporation (the "Company"), a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., as of November 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements of financial condition based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of financial condition are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of financial condition. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of financial condition presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such statements of financial condition present fairly, in all material respects, the financial position of Demeter Management Corporation at November 30, 2000 and 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP New York, New York January 12, 2001 F-30 DEMETER MANAGEMENT CORPORATION (WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.) STATEMENTS OF FINANCIAL CONDITION NOVEMBER 30, 2000 AND 1999
NOVEMBER 30, --------------------------- 2000 1999 ------------ ------------ $ $ ASSETS Investments in affiliated partnerships 22,094,121 17,825,316 Income taxes receivable 578,533 803,778 Receivable from affiliated partnerships 723 20,428 ------------ ------------ Total Assets 22,673,377 18,649,522 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Payable to Parent 17,082,188 13,033,208 Accrued expenses 451 29,293 ------------ ------------ Total Liabilities 17,082,639 13,062,501 ------------ ------------ STOCKHOLDER'S EQUITY: Common stock, no par value: Authorized 1,000 shares; outstanding 100 shares at stated value of $500 per share 50,000 50,000 Additional paid-in capital 123,170,000 123,170,000 Retained earnings 5,440,738 5,437,021 ------------ ------------ 128,660,738 128,657,021 Less: Notes receivable from Parent (123,070,000) (123,070,000) ------------ ------------ Total Stockholder's Equity 5,590,738 5,587,021 ------------ ------------ Total Liabilities and Stockholder's Equity 22,673,377 18,649,522 ============ ============
The accompanying notes are an integral part of these statements of financial condition. F-31 DEMETER MANAGEMENT CORPORATION (WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.) NOTES TO STATEMENTS OF FINANCIAL CONDITION FOR THE YEARS ENDED NOVEMBER 30, 2000 AND 1999 1. INTRODUCTION AND BASIS OF PRESENTATION Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW" or "Parent"). Demeter manages the following commodity pools as sole general partner: Dean Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III, Dean Witter Cornerstone Fund IV, Columbia Futures Fund, Dean Witter Diversified Futures Fund Limited Partnership, Dean Witter Diversified Futures Fund II L.P., Dean Witter Diversified Futures Fund III L.P., Dean Witter Multi-Market Portfolio L.P., Dean Witter Principal Plus Fund L.P., Dean Witter Principal Plus Fund Management L.P., Dean Witter Portfolio Strategy Fund L.P., Dean Witter Global Perspective Portfolio L.P., Dean Witter World Currency Fund L.P., Morgan Stanley Dean Witter Spectrum Currency L.P. ("Spectrum Currency"), Morgan Stanley Dean Witter Spectrum Commodity L.P. (formerly, Morgan Stanley Tangible Asset Fund L.P.) ("Spectrum Commodity"), Morgan Stanley Dean Witter Spectrum Global Balanced L.P. (formerly, Dean Witter Spectrum Global Balanced L.P.), Morgan Stanley Dean Witter Spectrum Strategic L.P. (formerly, Dean Witter Spectrum Strategic L.P.), Morgan Stanley Dean Witter Spectrum Technical L.P. (formerly, Dean Witter Spectrum Technical L.P.), Morgan Stanley Dean Witter Spectrum Select L.P. (formerly, Dean Witter Spectrum Select L.P.), Morgan Stanley Dean Witter/Chesapeake L.P. (formerly, DWR Chesapeake L.P.), Morgan Stanley Dean Witter/JWH Futures Fund L.P. (formerly, DWR/JWH Futures Fund L.P.), Morgan Stanley Dean Witter/Market Street Futures Fund L.P. (formerly, DWR/Market Street Futures Fund L.P.), Morgan Stanley Dean Witter Charter DWFCM L.P. (formerly, DWFCM International Access Fund L.P.) ("Charter DWFCM"), Morgan Stanley Dean Witter Charter Graham L.P. ("Charter Graham"), Morgan Stanley Dean Witter Charter Millburn L.P. ("Charter Millburn"), Morgan Stanley Dean Witter Charter Welton L.P. ("Charter Welton") and Morgan Stanley Dean Witter Strategic Alternatives Fund L.P. ("SAFLP"). Each of the commodity pools is a limited partnership organized to engage in the speculative trading of commodity futures contracts, forward contracts on foreign currencies and other commodity interests. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. On July 15, 1998, Demeter entered into a limited partnership agreement as general partner in the Morgan Stanley Dean Witter Charter Series. The three partnerships that comprise the Charter Series are Charter Graham, Charter Millburn and Charter Welton. On July 29, 1998, the Charter Series individually registered with the SEC 3,000,000 units of Charter Graham, 3,000,000 units of Charter Millburn and 3,000,000 units of Charter Welton to be offered to investors in a continuing public offering. Charter Graham, Charter Millburn and Charter Welton each commenced trading on March 1, 1999. On February 3, 1999, DWR Chesapeake L.P. changed its name to Morgan Stanley Dean Witter/Chesapeake L.P. On February 3, 1999, DWR/JWH Futures Fund L.P. changed its name to Morgan Stanley Dean Witter/JWH Futures Fund L.P. On April 30, 1999, Dean Witter Spectrum Global Balanced L.P. changed its name to Morgan Stanley Dean Witter Spectrum Global Balanced L.P. On April 30, 1999, Dean Witter Spectrum Select L.P. changed its name to Morgan Stanley Dean Witter Spectrum Select L.P. F-32 DEMETER MANAGEMENT CORPORATION (WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.) NOTES TO STATEMENTS OF FINANCIAL CONDITION (CONTINUED) On April 30, 1999, Dean Witter Spectrum Strategic L.P. changed its name to Morgan Stanley Dean Witter Spectrum Strategic L.P. On April 30, 1999, Dean Witter Spectrum Technical L.P. changed its name to Morgan Stanley Dean Witter Spectrum Technical L.P. On May 4, 1999, Demeter entered into a limited partnership agreement as general partner in Morgan Stanley Dean Witter Strategic Alternatives L.P. ("SAFLP"). SAFLP is the domestic vehicle for investment of client assets. Morgan Stanley Dean Witter Strategic Alternatives Fund ("SAFFI"), is an umbrella unit trust, which is the offshore investment vehicle for client assets. Together SAFLP and SAFFI are members of and invest 100% of their proceeds into Morgan Stanley Dean Witter Strategic Alternatives L.L.C. which is the investment vehicle organized to engage in the speculative trading of futures interests which commenced trading on May 4, 2000. On July 6, 1999, DWR/Market Street Futures Fund L.P. changed its name to Morgan Stanley Dean Witter/ Market Street Futures Fund L.P. On March 7, 2000, Morgan Stanley Tangible Asset Fund L.P. changed its name to Morgan Stanley Dean Witter Spectrum Commodity L.P. ("Spectrum Commodity"). Spectrum Commodity registered 7,000,000 Units on March 6, 2000 and became open to new investment on a continuous basis as of that date. Effective March 6, 2000, Spectrum Commodity became part of the Morgan Stanley Dean Witter Spectrum Series of Funds. On March 6, 2000, Demeter entered into a limited partnership agreement as general partner in Morgan Stanley Dean Witter Spectrum Currency L.P. ("Spectrum Currency") and registered 12,000,000 Units to be offered to investors in a continuing public offering. Spectrum Currency commenced trading on July 5, 2000. On March 27, 2000, the Charter Series individually registered additional Units with the SEC; 6,000,000 Units of Charter Graham, 6,000,000 Units of Charter Millburn and 6,000,000 Units of Charter Welton to be offered to investors in a continuing public offering. Effective with the April 30, 2000 monthly closing, the exchange privilege among the Cornerstone Funds (a "Series Exchange") was terminated. On October 11, 2000, DWFCM International Access Fund L.P. changed its name to Morgan Stanley Dean Witter Charter DWFCM L.P. ("Charter DWFCM"). Charter DWFCM registered 1,750,000 Units on October 11, 2000 and became open to new investment on a continuous basis starting November 1, 2000. Effective December 1, 2000, Charter DWFCM became part of the Morgan Stanley Dean Witter Charter Series. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INCOME TAXES The results of operations of Demeter are included in the consolidated federal income tax return of MSDW. Income taxes are computed on a separate company basis and are due to MSDW. 3. INVESTMENTS IN AFFILIATED PARTNERSHIPS The limited partnership agreement of each commodity pool requires Demeter to maintain a general partnership interest in each partnership, generally in an amount equal to, but not less than 1 percent of the aggregate capital contributed to the partnership by all partners. F-33 DEMETER MANAGEMENT CORPORATION (WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.) NOTES TO STATEMENTS OF FINANCIAL CONDITION (CONTINUED) The total assets, liabilities and partners' capital of all the funds managed by Demeter at November 30, 2000 and 1999 were as follows:
NOVEMBER 30, ----------------------------- 2000 1999 ------------- ------------- $ $ Total assets................................................ 1,244,513,096 1,355,594,817 Total liabilities........................................... 27,380,688 28,406,267 Total partners' capital..................................... 1,217,132,408 1,327,188,550
Demeter's investments in such limited partnerships are carried at market value. 4. PAYABLE TO PARENT The Payable to Parent is primarily for amounts due for the purchase of partnership investments, income tax payments made by MSDW on behalf of Demeter and the cumulative results of operations. 5. NET WORTH REQUIREMENT At November 30, 2000 and 1999, Demeter held non-interest bearing notes from its Parent that were payable on demand. These notes were received in connection with additional capital contributions aggregating $123,070,000 at November 30, 2000 and 1999. The limited partnership agreement of each commodity pool requires Demeter to maintain its net worth at an amount not less than 10% of the capital contributions by all partners in each pool in which Demeter is the general partner (15% if the capital contributions to any partnership are less than $2,500,000, or $250,000, whichever is less). In calculating this requirement, Demeter's interests in each limited partnership and any amounts receivable from or payable to such partnerships are excluded from net worth. Notes receivable from Parent are included in net worth for purposes of this calculation. 6. LITIGATION The class actions first filed in 1996 in California and in New York State courts were each dismissed in 1999. However, in the New York State class action, plaintiffs appealed the trial court's dismissal of their case on March 3, 2000. On September 18 and 20, 1996, purported class actions were filed in the Supreme Court of the State of New York, New York County, 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., MSDW, Spectrum Select (under its original name, "Dean Witter Select Futures Fund L.P.") and certain other limited partnership commodity pools of which Demeter is the general partner and certain trading advisors to those pools. 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. The complaints sought unspecified amounts of compensatory and punitive damages and other relief. 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 filed a motion to dismiss the amended complaint with prejudice on February 1, 1999. By decision dated December 21, 1999, the New York Supreme Court dismissed the case with prejudice. However, on March 3, 2000 plaintiffs appealed the trial court's dismissal of their case. F-34 EXHIBIT A TABLE OF CONTENTS TO FORM OF LIMITED PARTNERSHIP AGREEMENT
PAGE -------- 1. Formation; Name................................................... A-1 2. Office............................................................ A-1 3. Business.......................................................... A-2 4. Term; Dissolution; Fiscal Year.................................... A-2 Spectrum Select only.............................................. A-2 (a) Term........................................................ A-2 Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only..................................................... A-2 (a) Term........................................................ A-2 Spectrum Currency only............................................ A-3 (a) Term........................................................ A-3 Spectrum Commodity only........................................... A-3 (a) Term........................................................ A-3 (b) Dissolution................................................. A-3 (c) Fiscal Year................................................. A-4 5. Net Worth of General Partner...................................... A-4 6. Capital Contributions and Offering of Units of Limited Partnership Interest.......................................................... A-4 7. Allocation of Profits and Losses; Accounting; Other Matters....... A-6 (a) Capital Accounts............................................ A-6 (b) Monthly Allocations......................................... A-6 (c) Allocation of Profit and Loss for Federal Income Tax Purposes................................................... A-6 (d) Definitions; Accounting..................................... A-8 (e) Expenses and Limitations Thereof............................ A-8 (f) Limited Liability of Limited Partners....................... A-9 (g) Return of Limited Partner's Capital Contribution............ A-9 (h) Distributions............................................... A-9 (i) Interest on Assets.......................................... A-9 8. Management and Trading Policies................................... A-9 (a) Management of the Partnership............................... A-9 (b) The General Partner......................................... A-10 (c) General Trading Policies.................................... A-11 Trading Policies for All Partnerships............................. A-11 Trading Policies for All Partnerships Except Spectrum Commodity... A-11 Trading Policy for Spectrum Commodity only........................ A-11 (d) Changes to Trading Policies................................. A-11 Trading Policy for Spectrum Select, Technical, and Strategic only.............................................................. A-11 Trading Policy for Spectrum Select only........................... A-12 Trading Policy for Spectrum Global Balanced only.................. A-12 (d) Changes to Trading Policies................................. A-12 (e) Miscellaneous............................................... A-12 9. Audits; Reports to Limited Partners............................... A-14 10. Transfer; Redemption of Units; Exchange Privilege................. A-15 (a) Transfer.................................................... A-15 (b) Redemption.................................................. A-15 (c) Exchange Privilege.......................................... A-16 11. Special Power of Attorney......................................... A-18 12. Withdrawal of Partners............................................ A-18 13. No Personal Liability for Return of Capital....................... A-18 14. Standard of Liability; Indemnification............................ A-18 (a) Standard of Liability....................................... A-18 (b) Indemnification by the Partnership.......................... A-19 (c) Affiliate................................................... A-19 (d) Indemnification by Partners................................. A-19 15. Amendments; Meetings.............................................. A-20 (a) Amendments with Consent of the General Partner.............. A-20 (b) Meetings.................................................... A-20 (c) Amendments and Actions without Consent of the General Partner.................................................... A-20 (d) Action Without Meeting...................................... A-21 (e) Amendments to Certificate of Limited Partnership............ A-21 16. Index of Defined Terms............................................ A-21 17. Governing Law..................................................... A-22 18. Miscellaneous..................................................... A-22 (a) Priority among Limited Partners............................. A-22 (b) Notices..................................................... A-22 (c) Binding Effect.............................................. A-22 (d) Captions.................................................... A-22 Annex A--Request for Redemption: Morgan Stanley Dean Witter Managed Futures Funds...................................... A-24
A-i EXHIBIT A FORM OF (1) AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT FOR EACH OF THE MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P., MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P., MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P., MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P., AND MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.; AND (2) LIMITED PARTNERSHIP AGREEMENT FOR MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. BOLDFACED CAPTIONS AND BRACKETED TEXT REFLECT DIFFERENCES IN LIMITED PARTNERSHIP AGREEMENTS. SPECTRUM SELECT ONLY: This Agreement of Limited Partnership, made as of March 21, 1991, as amended and restated as of August 31, 1993, as further amended and restated as of October 17, 1996, as further amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. SPECTRUM TECHNICAL, SPECTRUM STRATEGIC, AND SPECTRUM GLOBAL BALANCED ONLY: This Agreement of Limited Partnership, made as of May 27, 1994, as amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and between Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. SPECTRUM COMMODITY ONLY: This Agreement of Limited Partnership, made as of July 31, 1997, as amended and restated as of March 6, 2000 (as so amended, this "Agreement"), by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. SPECTRUM CURRENCY ONLY: This Agreement of Limited Partnership, made as of March 6, 2000 (this "Agreement"), by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively, "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. WITNESSETH: WHEREAS, the parties hereto desire to form a limited partnership for the purpose of engaging in the speculative trading of future interests. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. FORMATION; NAME. The parties hereto do hereby form a limited partnership under the Delaware Revised Uniform Limited Partnership Act, as amended and in effect on the date hereof (the "Act"). The name of the limited A-1 partnership is Morgan Stanley Dean Witter Spectrum [SELECT][TECHNICAL][STRATEGIC][GLOBAL BALANCED] [COMMODITY][CURRENCY] L.P. (the "Partnership"). The General Partner shall execute and file a Certificate of Limited Partnership of the Partnership (the "Certificate of Limited Partnership") in accordance with the Act, and shall execute, file, record, and publish as appropriate such amendments, assumed name certificates, and other documents as are or become necessary or advisable in connection with the operation of the Partnership, as determined by the General Partner, and shall take all steps which the General Partner may deem necessary or advisable to allow the Partnership to conduct business as a limited partnership where the Partnership conducts business in any jurisdiction, and to otherwise provide that Limited Partners will have limited liability with respect to the activities of the Partnership in all such jurisdictions, and to comply with the law of any jurisdiction. Each Limited Partner hereby undertakes to furnish to the General Partner a power of attorney and such additional information as the General Partner may request to complete such documents and to execute and cooperate in the filing, recording, or publishing of such documents as the General Partner determines appropriate. 2. OFFICE. The principal office of the Partnership shall be Two World Trade Center, 62nd Floor, New York, New York 10048, or such other place as the General Partner may designate from time to time. The address of the principal office of the Partnership in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name and address of the registered agent for service of process on the Partnership in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other agent as the General Partner shall designate from time to time. 3. BUSINESS. The Partnership's business and general purpose is to trade, buy, sell, spread, or otherwise acquire, hold, or dispose of commodities (including, but not limited to, foreign currencies, mortgage-backed securities, money market instruments, financial instruments, and any other securities or items which are now, or may hereafter be, the subject of futures contract trading), domestic and foreign commodity futures contracts, commodity forward contracts, foreign exchange commitments, options on physical commodities and on futures contracts, spot (cash) commodities and currencies, and any rights pertaining thereto (hereinafter referred to collectively as "Futures Interests") and securities (such as United States Treasury securities) approved by the Commodity Futures Trading Commission (the "CFTC") for investment of customer funds and other securities on a limited basis, and to engage in all activities incident thereto. The objective of the Partnership's business is appreciation of its assets through speculative trading. The Partnership may pursue this objective in any lawful manner consistent with the Partnership's trading policies. The Partnership may engage in the foregoing activities either directly or through any lawful transaction or any lawful activity into which a limited partnership may enter or in which a limited partnership may engage under the laws of the State of Delaware; provided that such transactions or activities do not subject the Limited Partners to any liability in excess of the limited liability provided for herein and contemplated by the Act. 4. TERM; DISSOLUTION; FISCAL YEAR. SPECTRUM SELECT ONLY: (a) TERM. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2025; (ii) withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iv) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General A-2 Partner) on any day to less than $2.50; (v) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or less than $250,000; (vi) a determination by the General Partner that the Partnership's Net Assets in relation to the operating expenses of the Partnership make it unreasonable or imprudent to continue the business of the Partnership; (vii) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. SPECTRUM TECHNICAL, SPECTRUM STRATEGIC, AND SPECTRUM GLOBAL BALANCED ONLY: (a) TERM. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. SPECTRUM CURRENCY ONLY: (a) TERM. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. SPECTRUM COMMODITY ONLY: (a) TERM. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2027; (ii) the insolvency, bankruptcy, dissolution, liquidation, or termination of any general partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iii) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (iv) an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the Units then outstanding, notice of which is sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (v) withdrawal by the General Partner (unless a new general partner(s) is elected by the Limited Partners as provided in Section 15(c)); (vi) a decline in the Net Asset Value (as determined by the General Partner) of a Unit as of A-3 the close of business on any day to less than $2.50; (vii) a decline in the Partnership's Net Assets (as determined by the General Partner) as of the close of business on any day to $250,000 or less; (viii) a determination by the General Partner that the Partnership's Net Assets in relation to the operating expenses of the Partnership make it unreasonable or imprudent to continue the business of the Partnership; or (ix) a determination by the General Partner to terminate the Partnership following a Special Redemption Date. (b) DISSOLUTION. Upon the occurrence of an event causing the termination of the Partnership, the Partnership shall terminate and be dissolved. Dissolution, payment of creditors, and distribution of the Partnership's Net Assets shall be effected as soon as practicable in accordance with the Act, except that the General Partner and each Limited Partner (and any assignee) shall share in the Net Assets of the Partnership pro rata in accordance with such Partner's respective capital account, less any amount owing by such Partner (or assignee) to the Partnership. The General Partner shall, at its option, be entitled to supervise the liquidation of the Partnership. Nothing contained in this Agreement shall impair, restrict, or limit the rights and powers of the Partners under the law of the State of Delaware and any other jurisdiction in which the Partnership shall be conducting business to reform and reconstitute themselves as a limited partnership following dissolution of the Partnership, either under provisions identical to those set forth herein or any others which they shall deem appropriate. (c) FISCAL YEAR. The fiscal year of the Partnership shall begin on January 1 of each year and end on the following December 31. 5. NET WORTH OF GENERAL PARTNER. The General Partner agrees that at all times, as long as it remains General Partner of the Partnership, it shall maintain its net worth at an amount not less than 10% of the total contributions to the Partnership by all Partners and to any other limited partnership for which it acts as a general partner by all partners; PROVIDED, HOWEVER, that if the total contributions to the Partnership by all such partnership's partners, or to any limited partnership for which it acts as a general partner by all partners, are less than $2,500,000, then with respect to the Partnership and any such limited partnership, the General Partner shall maintain its net worth at an amount of at least 15% of the total contributions to the Partnership by all Partners and of the total contributions to any such limited partnership for which it acts as a general partner by all such partnership's partners or $250,000, whichever is the lesser; and, PROVIDED, FURTHER, that in no event shall the General Partner's net worth be less than $50,000. For the purposes of this Section 5, "net worth" shall be calculated in accordance with generally accepted accounting principles, except as otherwise specified in this Section 5, with all current assets based on their then current market values. The interests owned by the General Partner in the Partnership and any other partnerships for which it acts as a general partner and any notes and accounts receivable from and payable to any limited partnership in which it has an interest shall not be included as an asset in calculating its net worth, but any notes receivable from an affiliate (as such term is defined in Regulation S-X of the rules and regulations of the Securities and Exchange Commission (the "SEC")) of the General Partner or letters of credit may be included. The General Partner agrees that it shall not be a general partner of any limited partnership other than the Partnership unless, at all times when it is a general partner of any such additional limited partnership, its net worth is at least equal to the net worth required by the preceding paragraph of this Section 5. The requirements of the preceding two paragraphs of this Section 5 may be modified by the General Partner at its option, without notice to or the consent of the Limited Partners, PROVIDED THAT: (a) such modification does not adversely affect the interests of the Limited Partners, and (b) the General Partner obtains a written opinion of counsel for the Partnership that such proposed modification: (i) will not adversely affect the classification of the Partnership as a partnership for federal income tax purposes, (ii) will not adversely affect the status of the Limited Partners as limited partners under the Act, and (iii) will not violate any applicable state securities or Blue Sky law or any rules, regulations, guidelines, or statements of policy promulgated or applied thereunder; PROVIDED, HOWEVER, that the General Partner's net worth may not be reduced below the lesser of (A) the net worth required by Section II.B of the Guidelines for Registration of Commodity Pool Programs, as adopted in revised form by the North American Securities Administrators Association, Inc. in September, 1993 (the "NASAA Guidelines"), and (B) the net worth required by such Guidelines as in effect on the date of such proposed modification. A-4 6. CAPITAL CONTRIBUTIONS AND OFFERING OF UNITS OF LIMITED PARTNERSHIP INTEREST. The General Partner shall contribute to the Partnership, in $1,000 increments, such amount in cash as is necessary to make the General Partner's capital contribution at least equal to the greater of: (a) 1% of aggregate capital contributions to the Partnership by all Partners (including the General Partner's contribution) and (b) $25,000. Such contribution by the General Partner need not exceed the amount described above and shall be evidenced by Units of General Partnership Interest ("Unit(s) of General Partnership Interest"). The General Partner shall maintain its interest in the capital of the Partnership at no less than the amount stated above. The General Partner, without notice to or consent of the Limited Partners, may withdraw any portion of its interest in the Partnership that is in excess of its required interest described above. Interests in the Partnership, other than the General Partnership Interest of the General Partner, shall be Units of Limited Partnership Interest ("Units" or, individually, a "Unit"). The net asset value of a Unit of General Partnership Interest shall at all times be equivalent to the Net Asset Value of a Unit of Limited Partnership Interest. The General Partner, for and on behalf of the Partnership, shall issue and sell Units to persons desiring to become Limited Partners, PROVIDED that such persons shall be determined by the General Partner to be qualified investors and their subscriptions for Units shall be accepted by the General Partner, which acceptance the General Partner may withhold in whole or in part in its sole discretion. The minimum subscription for Units per subscriber shall be such amount as the General Partner shall determine from time to time in its sole discretion. The Partnership, directly and/or through Dean Witter Reynolds Inc. ("DWR") or such other selling agent or agents (each, a "Selling Agent") as may be approved by the General Partner, may at any time and from time to time in the sole discretion of the General Partner offer for sale Units and fractions of Units (to the third decimal place) in public and/or private offerings, at prices per Unit, in such minimum amounts, for such periods of time, and on such terms and conditions as the General Partner shall determine in its sole discretion. Units offered during any offering shall be issued and sold by the Partnership as of the close of business (as determined by the General Partner) on the last business day of a fiscal quarter or month and a closing for subscriptions received during such offering shall be held as of such date; PROVIDED, HOWEVER, that the General Partner may hold closings at such other times and for such other periods as it shall determine in its sole discretion to effectuate such offerings. At each such closing, the Partnership shall issue and sell Units to each subscriber whose subscription shall be accepted by the General Partner at a price per Unit to be determined by the General Partner in its sole discretion; PROVIDED, HOWEVER, that the offering price per Unit during any offering of Units shall not at any time be less than the Net Asset Value of a Unit as of the close of business on the date of the applicable closing at which such Unit shall be issued and sold, unless the newly offered Units' participation in the Partnership's profits and losses is proportionately reduced. During any offering, Units may be subscribed for by the General Partner, DWR, Morgan Stanley Dean Witter & Co. ("MSDW"), any trading advisor to the Partnership (each, a "Trading Advisor"), any commodity broker for the Partnership (each, a "Commodity Broker"), and such persons' respective shareholders, directors, officers, partners, employees, principals, and Affiliates. Subscriptions for Units by such persons shall not preclude them from receiving compensation from the Partnership for services rendered by them in their respective capacities as other than Limited Partners. No subscriber for Units during any offering of Units shall become a Limited partner until the General Partner shall: (a) accept such subscriber's subscription at a closing relating to such offering; (b) execute this Agreement on behalf of such subscriber pursuant to the power of attorney in the subscription agreement executed by the subscriber in connection with such offering; and (c) make an entry on the books and records of the Partnership reflecting that such subscriber has been admitted as a Limited Partner. Accepted subscribers shall be deemed Limited Partners at such time as their admission shall be reflected on the books and records of the Partnership. The aggregate of all capital contributions to the Partnership shall be available to the Partnership to carry on its business and no interest shall be paid by the Partnership on any such contribution. In connection with any offering of Units by the Partnership, the General Partner, on behalf of the Partnership, shall: (a) cause to be filed one or more Disclosure Documents and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law with the CFTC and the National Futures Association ("NFA"), Forms D or other applications, notices or forms with the SEC and state securities and Blue Sky administrators, and Registration Statements, Prospectuses (as used hereinafter, the term "Prospectus" shall mean the most recent version of the A-5 Prospectus issued by the Partnership, or the most recent version of the Disclosure Document or other offering memorandum prepared, in connection with the particular offering of Units), and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law, with the CFTC, the NFA, the SEC, and the National Association of Securities Dealers, Inc.; (b) qualify by registration or exemption from registration the Units for sale under the Blue Sky and securities laws of such states of the United States and such other jurisdictions as the General Partner in its sole discretion shall deem advisable or as may be required by applicable law; (c) make such arrangements for the sale of Units as it shall deem advisable, including engaging DWR or any other firm as Selling Agent and entering into a selling agreement with DWR or such other Selling Agent; and (d) take such action with respect to and in order to effectuate the matters described in clauses (a) through (c) as it shall deem advisable or necessary. The Partnership shall not pay the costs of any offering or any selling commissions relating thereto. No Limited Partner shall have any preemptive, preferential or other rights with respect to the issuance or sale of any additional Units, except as described in the applicable Prospectus. No Limited Partner shall have the right to consent to the admission of any additional Limited Partner. There is no maximum aggregate amount of contributions which may be received by the Partnership. All Units subscribed for shall be issued subject to the collection of good funds. If, at any time, good funds representing payment for Units are not made available to the Partnership because a subscriber has provided bad funds in the form of a bad check or draft or otherwise to DWR or another Selling Agent which, in turn, has deposited the subscription amount with the escrow agent, the Partnership shall cancel the Units issued to such subscriber represented by such bad funds, and the subscriber's name shall be removed as a Limited Partner from the books and records of the Partnership. Any losses or profits sustained by the Partnership as a result thereof in connection with its Futures Interests trading allocable to such cancelled Units shall be deemed a decrease or increase in Net Assets and allocated among the remaining Partners as described in Section 7. Each Limited Partner agrees to reimburse the Partnership for any expense or loss incurred in connection with the issuance and cancellation of any such Units issued to such Limited Partner. 7. ALLOCATION OF PROFITS AND LOSSES; ACCOUNTING; OTHER MATTERS. (a) CAPITAL ACCOUNTS. A capital account shall be established for each Partner. The initial balance of each Partner's capital account shall be the amount of a Partner's initial capital contribution to the Partnership. (b) MONTHLY ALLOCATIONS. As of the close of business (as determined by the General Partner) on the last day of each calendar month ("Determination Date") during each fiscal year of the Partnership, the following determinations and allocations shall be made: (1) The Net Assets of the Partnership (as defined in Section 7(d)(1)), before accrual of the monthly management fees and incentive fees payable to any Trading Advisor, shall be determined. (2) The accrued monthly management fees shall then be charged against Net Assets. (3) The accrued monthly incentive fees, if any, shall then be charged against Net Assets. (4) Any increase or decrease in Net Assets (after the adjustments in subparagraphs (2) and (3) above), over those of the immediately preceding Determination Date (or, in the case of the first Determination Date, the first closing of the sale of Units to the public), shall then be credited or charged to the capital account of each Partner in the ratio that the balance of each account bears to the balance of all accounts. (5) The amount of any distribution to a Partner, any amount paid to a Partner on redemption of Units, any amount deemed received by a Partner on a Series Exchange of Units pursuant to Section 10(c) hereof, and any amount paid to the General Partner upon withdrawal of its interest in the Partnership shall be charged to that Partner's capital account. (c) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES. As of the end of each fiscal year of the Partnership, the Partnership's realized profit or loss shall be allocated among the Partners pursuant to the following subparagraphs for federal income tax purposes. Such allocations of profit and A-6 loss will be pro rata from net capital gain or loss and net operating income or loss realized by the Partnership. For United States federal income tax purposes, a distinction will be made between net short-term gain or loss and net long-term gain or loss. (1) Items of ordinary income (such as interest or credits in lieu of interest) and expense (such as the management fees, incentive fees, brokerage fees and extraordinary expenses) shall be allocated pro rata among the Partners based on their respective capital accounts (exclusive of these items of ordinary income or expense) as of the end of each month in which the items of ordinary income or expense accrued. (2) Net realized capital gain or loss from the Partnership's trading activities shall be allocated as follows: (aa) For the purpose of allocating the Partnership's net realized capital gain or loss among the Partners, there shall be established an allocation account with respect to each outstanding Unit. The initial balance of each allocation account shall be the amount paid by the Partner to the Partnership for the Unit. Allocation accounts shall be adjusted as of the end of each fiscal year and as of the date a Partner completely redeems his Units as follows: (i) Each allocation account shall be increased by the amount of income allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(cc) below. (ii) Each allocation account shall be decreased by the amount of expense or loss allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(ee) below and by the amount of any distribution the holder of the Unit has received with respect to the Unit (other than on redemption of the Unit). (iii) When a Unit is redeemed or exchanged in a Series Exchange, the allocation account with respect to such Unit shall be eliminated. (bb) Net realized capital gain shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal year up to the excess, if any, of the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units over the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange. (cc) Net realized capital gain remaining after the allocation thereof pursuant to subparagraph (c)(2)(bb) above shall be allocated next among all Partners whose capital accounts are in excess of their Units' allocation accounts (after the adjustments in subparagraph (c)(2)(bb) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that gain to be allocated pursuant to this subparagraph (c)(2)(cc) is greater than the excess of all such Partners' capital accounts over all such allocation accounts, the excess will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (dd) Net realized capital loss shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal year up to the excess, if any, of the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange over the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units. (ee) Net realized capital loss remaining after the allocation thereof pursuant to subparagraph (c)(2)(dd) above shall be allocated next among all Partners whose Units' allocation accounts are in excess of their capital accounts (after the adjustments in subparagraph (c)(2)(dd) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that loss to be allocated pursuant to this subparagraph (c)(2)(ee) is greater than the excess of all such allocation accounts over all such Partners' capital accounts, the excess loss will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (3) The tax allocations prescribed by this Section 7(c) shall be made to each holder of a Unit whether or not the holder is a substituted Limited Partner. In the event that a Unit has been A-7 transferred or assigned pursuant to Section 10(a), the allocations prescribed by this Section 7(c) shall be made with respect to such Unit without regard to the transfer or assignment, except that in the year of transfer or assignment the allocations prescribed by this Section 7(c) shall be divided between the transferor or assignor and the transferee or assignee based on the number of months each held the transferred or assigned Unit. For purposes of this Section 7(c), tax allocations shall be made to the General Partner's Units of General Partnership Interest on a Unit-equivalent basis. (4) The allocation of profit and loss for federal income tax purposes set forth herein is intended to allocate taxable profits and loss among Partners generally in the ratio and to the extent that net profit and net loss are allocated to such Partners under Section 7(b) hereof so as to eliminate, to the extent possible, any disparity between a Partner's capital account and his allocation account with respect to each Unit then outstanding, consistent with the principles set forth in Section 704(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). (d) DEFINITIONS; ACCOUNTING. (1) NET ASSETS. The Partnership's "Net Assets" shall mean the total assets of the Partnership (including, but not limited to, all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open Futures Interests positions and other assets of the Partnership) less the total liabilities of the Partnership (including, but not limited to, all brokerage, management and incentive 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 Interest traded on a United States exchange shall mean the settlement price on the exchange on which the particular Futures Interest was traded by the Partnership on the day with respect to which Net Assets are being determined; PROVIDED, HOWEVER, that if a Futures Interest could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange upon which that Futures Interest shall be traded or otherwise, the settlement price on the first subsequent day on which the Futures Interest could be liquidated shall be the market value of such Futures Interest for such day. The market value of a forward contract or a Futures Interest traded on a foreign exchange or market shall mean its market value as determined by the General Partner on a basis consistently applied for each different variety of forward contract or Futures Interest. (2) NET ASSET VALUE. The "Net Asset Value" of a Unit shall mean the Net Assets allocated to capital accounts represented by Units of Limited Partnership Interest divided by the aggregate number of Units of Limited Partnership Interest. (e) EXPENSES AND LIMITATIONS THEREOF. DWR shall pay all of the organizational, initial and continuing offering expenses of the Partnership (including, but not limited to, legal, accounting, and auditing fees, printing costs, filing fees, escrow fees, marketing costs and expenses, and other related expenses), and shall not be reimbursed therefor. Subject to the limits set forth below, and except to the extent that DWR or an affiliate has agreed to pay any such fees, costs or expenses as provided in the Prospectus, the Partnership shall pay its operational expenses. The General Partner shall not be reimbursed by the Partnership for any costs incurred by it relating to office space, equipment, and staff necessary for Partnership operations and administration of redemptions and Series Exchanges of Units. The Partnership will be obligated to pay any extraordinary expenses (determined in accordance with generally accepted accounting principles) it may incur. The Partnership's assets held by any Commodity Broker, as provided in Section 7(i), may be used as margin solely for the Partnership's trading. The Partnership shall bear all commodity brokerage fees and commissions and, except as otherwise set forth herein or described in the Prospectus, shall be obligated to pay all liabilities incurred by it, including, without limitation, all fees and expenses incurred in connection with its trading activities (including, but not limited to, floor brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give up" or transfer fees, costs associated with the taking of delivery of Futures Interests, fees for the execution of forward contract transactions, fees for the execution of cash transactions relating to the exchange of futures for physical transactions, and the use of any Commodity Broker's institutional and overnight execution facilities (collectively, "Transaction Fees and Costs")), and management and incentive fees payable to any Trading Advisor. Appropriate reserves may be created, A-8 accrued, and charged against Net Assets for contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner. Such reserves shall reduce the Net Asset Value of interests in the Partnership for all purposes, including redemptions and Series Exchanges. The following special limits shall apply to the Partnership's fees and expenses, in accordance with Section IV.C of the NASAA Guidelines: (a) the aggregate of (i) the management fees payable by the Partnership to the Trading Advisor(s), and (ii) the Partnership's customary and routine administrative expenses (other than commodity brokerage commissions or fees, Transaction Fees and Costs, incentive fees, legal and auditing fees and expenses, and extraordinary expenses), shall not exceed 1/2 of 1% of the Partnership's Net Assets per month, or 6% of the Partnership's Net Assets annually; (b) the monthly incentive fees payable by the Partnership shall not exceed 15% of the Partnership's "Trading Profits" (as defined in the Prospectus) attributable to such Trading Advisor for the applicable calculation period, PROVIDED that such incentive fees may be increased by 2% for each 1% by which the aggregate fees and expenses described in clause (a) of this sentence are below the 6% of Net Assets annual limit thereon (I.E., if such fees and expenses are 4% of Net Assets, the maximum incentive fee payable may be increased to 19%); (c) any "roundturn" brokerage commissions (excluding Transaction Fees and Costs) payable by the Partnership to any Commodity Broker shall not exceed 80% of such Commodity Broker's published non-member rates for speculative accounts; and (d) the aggregate of (i) the brokerage commissions or fees payable by the Partnership to any Commodity Broker, (ii) any Transaction Fees and Costs separately payable by the Partnership, and (iii) any net excess interest and compensating balance benefits to any Commodity Broker (after crediting the Partnership with interest), shall not exceed 14% annually of the Partnership's average monthly Net Assets as at the last day of each month during each calendar year. The General Partner or an Affiliate thereof shall pay and shall not be reimbursed for any fees and expenses in excess of any such limits. (f) LIMITED LIABILITY OF LIMITED PARTNERS. Each Unit, when purchased by a Limited Partner in accordance with the terms of this Agreement, shall be fully paid and nonassessable. No Limited Partner shall be liable for the Partnership's obligations in excess of such Partner's unredeemed capital contribution, undistributed profits, if any, and any distributions and amounts received upon redemption of Units or deemed received on a Series Exchange of Units, together with interest thereon. The Partnership shall not make a claim against a Limited Partner with respect to amounts distributed to such Partner or amounts received by such Partner upon redemption of Units or deemed received upon a Series Exchange of Units unless the Net Assets of the Partnership (which shall not include any right of contribution from the General Partner except to the extent previously made by it pursuant to this Agreement) shall be insufficient to discharge the liabilities of the Partnership which shall have arisen prior to the payment of such amounts. (g) RETURN OF LIMITED PARTNER'S CAPITAL CONTRIBUTION. Except to the extent that a Limited Partner shall have the right to withdraw capital through redemption or Series Exchange of Units in accordance with Section 10(b) or (c), no Limited Partner shall have any right to demand the return of his capital contribution or any profits added thereto, except upon termination and dissolution of the Partnership. In no event shall a Limited Partner be entitled to demand or receive from the Partnership property other than cash. (h) DISTRIBUTIONS. The General Partner shall have sole discretion in determining what distributions (other than on redemption or Series Exchange of Units), if any, the Partnership shall make to its Partners. If made, all distributions shall be pro rata in accordance with the respective capital accounts of the Partners and may be made by credit to a Limited Partner's account with DWR or by check if such account is closed. (i) INTEREST ON ASSETS. The Partnership shall deposit all of its assets with such Commodity Broker(s) as the Partnership shall utilize from time to time, and such assets shall be used by the Partnership to engage in Futures Interests trading. Unless provided otherwise in the Prospectus, such assets will be invested in securities approved by the CFTC for investment of customer funds or held in non-interest-bearing accounts, and such Commodity Broker(s) will credit the Partnership at month-end with interest income as set forth in the Prospectus or as otherwise set forth in a notice to Limited Partners. 8. MANAGEMENT AND TRADING POLICIES. (a) MANAGEMENT OF THE PARTNERSHIP. Except as may be otherwise specifically provided herein, the General Partner, to the exclusion of all Limited Partners, shall conduct and manage the business of the A-9 Partnership, including, without limitation, the investment of the funds of the Partnership. No Limited Partner shall have the power to represent, act for, sign for, or bind the General Partner or the Partnership. Except as provided herein, no Partner shall be entitled to any salary, draw, or other compensation from the Partnership. Each Limited Partner hereby undertakes to furnish to the General Partner such additional information as may be determined by the General Partner to be required or appropriate for the Partnership to open and maintain an account or accounts with the Partnership's Commodity Broker(s) for the purpose of trading in Futures Interests. The General Partner shall be under a fiduciary duty to conduct the affairs of the Partnership in the best interests of the Partnership. The Limited Partners will under no circumstances be permitted to contract away, or be deemed to have contracted away, the fiduciary obligations owed them by the General Partner under statutory or common law. The General Partner shall have fiduciary responsibility for the safekeeping of all of the funds and assets of the Partnership, whether or not in its immediate possession or control, and the General Partner shall not employ, or permit another to employ, such funds or assets in any manner except for the benefit of the Partnership. (b) THE GENERAL PARTNER. The General Partner, on behalf of the Partnership, shall retain one or more Trading Advisors to make all trading decisions for the Partnership, and shall delegate complete trading discretion to such Trading Advisors; PROVIDED, HOWEVER, that the General Partner may override any trading instructions: (i) which the General Partner, in its sole discretion, determines to be in violation of any trading policy of the Partnership, as set forth in subsection (c) below; (ii) to the extent the General Partner believes doing so is necessary for the protection of the Partnership; (iii) to terminate the Futures Interests trading of the Partnership; (iv) to comply with applicable laws or regulations; or (v) as and to the extent necessary, upon the failure of a Trading Advisor to comply with a request to make the necessary amount of funds available to the Partnership, to fund distributions, redemptions, or reapportionments among Trading Advisors or to pay the expenses of the Partnership; and PROVIDED, FURTHER, that the General Partner may make trading decisions at any time at which a Trading Advisor shall become incapacitated or some other emergency shall arise as a result of which such Trading Advisor shall be unable or unwilling to act and a successor Trading Advisor has not yet been retained. The Partnership shall not enter into any agreement with the General Partner, DWR, or their respective Affiliates (other than a selling agreement as contemplated by Section 6) which has a term of more than one year and which does not provide that it shall be terminable by the Partnership without penalty upon 60 days' prior written notice by the General Partner; PROVIDED, HOWEVER, that any such agreement may provide for automatic renewal for additional one-year terms unless either the Partnership or the other party to such agreement, upon written notice given not less than 60 days prior to the original termination date or any extended termination date, notifies the other party of its intention not to renew. Subject to the foregoing paragraph, the General Partner is hereby authorized, on behalf of the Partnership, to enter into the form of management agreement described in the Prospectus (each, a "Management Agreement") with each Trading Advisor described in the Prospectus, and to cause the Partnership to pay to each such Trading Advisor the management and incentive fees provided for in the applicable Management Agreement, as described in the Prospectus. The General Partner is further authorized: (a) to modify (including changing the form and amount of compensation and other arrangements and terms) or terminate any Management Agreement in its sole discretion in accordance with the terms of such Management Agreement and to employ from time to time other Trading Advisors pursuant to management agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, which terms may include provision for the payment of an incentive fee to a new or replacement Trading Advisor or Advisors which shall be based on any trading profits which shall be earned by such Trading Advisor(s), irrespective of whether such profits shall exceed trading losses incurred by any previous or existing Trading Advisor or Advisors or by the Partnership as a whole; (b) to enter into the Customer Agreements described in the Prospectus (each, a "Customer Agreement") with the Commodity Brokers described in the Prospectus, and to cause the Partnership to pay to such Commodity Brokers brokerage fees or commissions and Transaction Fees and Costs at the rates provided for in the Customer Agreements and as described in the Prospectus; and (c) to modify (including changing the form and amount of compensation and other arrangements and terms) and terminate the Customer Agreements in its sole discretion in accordance with the terms of such A-10 Agreements and to employ from time to time other Commodity Brokers pursuant to customer agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, PROVIDED, HOWEVER, that the General Partner shall review at least annually the brokerage arrangements with the Partnership to ensure that the brokerage fees or commissions paid to any Commodity Broker are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: (i) the size of the Partnership; (ii) the Futures Interests trading activity; (iii) the services provided by the Commodity Broker, the General Partner or any Affiliate thereof to the Partnership; (iv) the cost incurred by the Commodity Broker, the General Partner or any Affiliate thereof in organizing and operating the Partnership and offering Units; (v) the overall costs to the Partnership; (vi) any excess interest and compensating balance benefits to the Commodity Broker from assets held thereby; and (vii) if the General Partner does not receive any direct compensation from the Partnership for its services as General Partner, the risks incurred by the General Partner as such. The General Partner may subdivide or combine Units in its discretion, provided that no such subdivision or combination shall affect the Net Asset Value of any Limited Partner's interest in the Partnership. (c) GENERAL TRADING POLICIES. The General Partner shall require any Trading Advisor retained by the Partnership to follow the trading policies set forth below. The following trading policies are applicable to the Partnership as a whole and do not apply to the trading of any individual Trading Advisor. TRADING POLICIES FOR ALL PARTNERSHIPS: - The Partnership will not employ the trading technique commonly known as "pyramiding," in which the speculator uses unrealized profits on existing positions in a given Futures Interest due to favorable price movement as margin specifically to buy or sell additional positions in the same or a related Futures Interest. Taking into account the Partnership's open trade equity on existing positions in determining generally whether to acquire additional Futures Interest positions on behalf of the Partnership will not be considered to constitute "pyramiding." - The Partnership will not under any circumstances lend money to affiliated entities or otherwise. The Partnership will not utilize borrowings except if the Partnership purchases or takes delivery of commodities. If the Partnership borrows money from the General Partner or any Affiliate thereof, the lending entity in such case (the "Lender") may not receive interest in excess of its interest costs, nor may the Lender receive interest in excess of the amounts which would be charged the Partnership (without reference to the General Partner's financial abilities or guarantees) by unrelated banks on comparable loans for the same purpose, nor may the Lender or any Affiliate thereof receive any points or other financing charges or fees regardless of the amount. Use of lines of credit in connection with its forward trading does not, however, constitute borrowing for purposes of this trading limitation. - The Partnership will not permit "churning" of the Partnership's assets. TRADING POLICY FOR ALL PARTNERSHIPS, EXCEPT SPECTRUM GLOBAL BALANCED, SPECTRUM CURRENCY, AND SPECTRUM COMMODITY: - The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). TRADING POLICIES FOR SPECTRUM SELECT, SPECTRUM TECHNICAL, AND SPECTRUM STRATEGIC ONLY: - The Trading Advisors will trade only in those Futures Interests that have been approved by the General Partner. The Partnership normally will not establish new positions in a Futures Interest for any one contract month or option if such additional positions would result in a net long or short position for that Futures Interest requiring as margin or premium more than 15% of the Partnership's Net Assets. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (I.E., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. A-11 - The Partnership will not acquire additional positions in any Futures Interest if such additional positions would result in the aggregate net long or short positions for all Futures Interests requiring as margin or premium for all outstanding positions more than 66 2/3% of the Partnership's Net Assets. Under certain market conditions, such as an abrupt increase in margins required by a commodity exchange or its clearinghouse or an inability to liquidate open positions because of daily price fluctuation limits, or both, the Partnership may be required to commit as margin amounts in excess of the foregoing limit. In such event, the Trading Advisors will reduce their open positions to comply with the foregoing limit before initiating new positions. - The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. TRADING POLICY FOR SPECTRUM SELECT AND SPECTRUM COMMODITY ONLY: - The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). TRADING POLICIES FOR SPECTRUM GLOBAL BALANCED ONLY: - The Trading Advisor will trade only in those Futures Interests that have been approved by the General Partner. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (I.E., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. - The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. The Partnership may, with the General Partner's prior approval, purchase "cash" stocks and bonds, or options on stock or bond indices, on a temporary basis under unusual circumstances in which it is not practicable or economically feasible to establish the Partnership's stock index or bond portfolios in the futures markets, and may acquire "cash" instruments in its short-term interest rate futures component. (d) CHANGES TO TRADING POLICIES. The General Partner shall not make any material change in the trading policies in Section 8(c) without obtaining the prior written approval of Limited Partners owning more than 50% of the Units then outstanding. The General Partner will notify the Limited Partners within seven business days after any material change in the Partnership's Trading Policies so approved by the Limited Partners. (e) MISCELLANEOUS. The General Partner may take such other actions as it deems necessary or desirable to manage the business of the Partnership, including, but not limited to, the following: opening bank accounts and paying or authorizing the payment of distributions to the Partners and the expenses of the Partnership, such as brokerage fees and commissions, management and incentive fees, ordinary and extraordinary expenses, and Transaction Fees and Costs. The General Partner shall prepare or cause to be prepared and shall file on or before the due date (or any extension thereof) any federal, state, or local tax returns which shall be required to be filed by the Partnership. The General Partner shall cause the Partnership to pay any taxes payable by the Partnership; PROVIDED, HOWEVER, that the General Partner shall not be required to cause the Partnership to pay any tax so long as the General Partner or the Partnership shall be in good faith and by appropriate legal proceedings contesting the validity, applicability, or amount thereof and such contest shall not materially endanger any right or interest of the Partnership. The General Partner shall be authorized to perform all duties imposed by Sections 6221 through 6233 of the Code on the General Partner as "tax matters partner" of the Partnership, including, but not limited to, the following: (a) the power to conduct all audits and other administrative proceedings with respect to Partnership tax items; (b) the power to extend the statute of limitations for all Limited Partners with respect to Partnership tax items; (c) the power to file a petition with an appropriate federal court for A-12 review of a final Partnership administrative adjustment; and (d) the power to enter into a settlement with the Internal Revenue Service on behalf of, and binding upon, those Limited Partners having less than a 1% interest in the Partnership, unless a Limited Partner shall have notified the Internal Revenue Service and the General Partner that the General Partner may not act on such Partner's behalf. If the Partnership is required to withhold United States taxes on income with respect to Units held by Limited Partners who are nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts, or foreign estates, the General Partner may pay such tax out of its own funds and then be reimbursed out of the proceeds of any distribution or redemption with respect to such Units. The General Partner shall keep at the principal office of the Partnership such books and records relating to the business of the Partnership as it deems necessary or advisable, as are required by the Commodity Exchange Act, as amended (the "CEAct"), and the CFTC's rules and regulations thereunder, or as shall be required by other regulatory bodies, exchanges, boards, and authorities having jurisdiction. Such books and records shall be retained by the Partnership for not less than five years. The Partnership's books and records shall be available to Limited Partners or their authorized attorneys or agents for inspection and copying during normal business hours of the Partnership and, upon request, the General Partner shall send copies of same to any Limited Partner upon payment by him of reasonable reproduction and distribution costs. Any subscription documentation executed by a Limited Partner in connection with his purchase of Units, Series Exchange or Non-Series Exchange, as applicable, shall be retained by the Partnership for not less than six years. Except as described herein or in the Prospectus, no person may receive, directly or indirectly, any advisory, management, or incentive fee for investment advice who shares or participates in per trade commodity brokerage commissions paid by the Partnership. No Commodity Broker for the Partnership may pay, directly or indirectly, rebates or "give-ups" to the General Partner or any Trading Advisor, and such prohibitions may not be circumvented by any reciprocal business arrangements. Assets of the Partnership shall not be commingled with assets of any other person. Margin deposits and deposits of assets with a Commodity Broker shall not constitute commingling. The General Partner shall devote such time and resources to the Partnership's business and affairs as it, in its sole discretion, shall deem necessary or advisable to effectively manage the Partnership. Subject to Section 5, the General Partner may engage in other business activities and shall not be required to refrain from any other activity or disgorge any profits from any such activity, whether as general partner of additional partnerships formed for investment in Futures Interests or otherwise. The General Partner may engage and compensate, on behalf and from funds of the Partnership, such persons, firms, or corporations, including any Affiliate of the General Partner, as the General Partner in its sole judgment shall deem advisable for the conduct and operation of the business of the Partnership; PROVIDED, HOWEVER, that, except as described herein and in the Prospectus, the General Partner shall not engage any such Affiliate to perform services for the Partnership without having made a good faith determination that: (i) the Affiliate which it proposes to engage to perform such services is qualified to do so (considering the prior experience of the Affiliate or the individuals employed thereby); (ii) the terms and conditions of the agreement pursuant to which such Affiliate is to perform services for the Partnership are no less favorable to the Partnership than could be obtained from equally-qualified unaffiliated third parties, or are otherwise determined by the General Partner to be fair and reasonable to the Partnership and the Limited Partners; and (iii) the maximum period covered by the agreement pursuant to which such Affiliate is to perform services for the Partnership shall not exceed one year, and such agreement shall be terminable without penalty upon 60 days' prior written notice by the Partnership. Nothing contained in the preceding sentence shall prohibit the General Partner from receiving reimbursement from the Partnership for expenses advanced on behalf of the Partnership (other than organizational and offering expenses). No person dealing with the General Partner shall be required to determine its authority to make any undertaking on behalf of the Partnership or to determine any fact or circumstance bearing upon the existence of its authority. A-13 9. AUDITS; REPORTS TO LIMITED PARTNERS. The Partnership's books shall be audited annually by an independent certified public accounting firm selected by the General Partner in its sole discretion. The Partnership shall use its best efforts to cause each Partner to receive: (a) within 90 days after the close of each fiscal year an annual report containing audited financial statements (including a statement of income and a statement of financial condition) of the Partnership for the fiscal year then ended, prepared in accordance with generally accepted accounting principles and accompanied by a report of the accounting firm which audited such statements, and such other information as the CFTC and NFA may from time to time require (such annual reports will provide a detailed statement of any transactions with the General Partner or its Affiliates and of fees, commissions and any compensation paid or accrued to the General Partner or its Affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed); (b) within 75 days after the close of each fiscal year (but in no event later than March 15 of each year) such tax information relating to the Partnership as is necessary for such Partner to complete his federal income tax return; (c) within 30 days after the close of each calendar month, such financial and other information with respect to the Partnership as the CFTC and NFA from time to time shall require in monthly reports, together with information concerning any material change in the brokerage commissions and fees payable by the Partnership to any Commodity Broker; and (d) at such times as shall be necessary or advisable in the General Partner's sole discretion, such other information as the CFTC and NFA from time to time shall require under the CEAct to be given to participants in commodity pools. In addition, if any of the following events occurs, notice of such event, including a description of the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15, shall be mailed to each Limited Partner within seven business days after the occurrence of such event: (a) a decrease in the Net Asset Value of a Unit as of the close of business on any business day to 50% or less of the Net Asset Value for such Unit as of the end of the immediately preceding month; (b) any material amendment to this Agreement; (c) any change in Trading Advisors or any material change in the Management Agreement with a Trading Advisor; (d) any change in Commodity Brokers or any material change in the compensation arrangements with a Commodity Broker; (e) any change in general partners or any material change in the compensation arrangements with a general partner; (f) any change in the Partnership's fiscal year; (g) any material change in the Partnership's trading policies; or (h) cessation of Futures Interests trading by the Partnership. In the case of a notice given in accordance with clause (a) of the immediately preceding sentence: (i) such notice shall also advise Limited Partners that a "Special Redemption Date," on a date specified in such notice (but in no event earlier than 15, nor later than 45, days after the mailing of such notice), will take place as of which Limited Partners may redeem their Units in the same manner as provided in Section 10(b) for regular Redemption Dates (a Special Redemption Date may take place on a regular Redemption Date); and (ii) following the close of business on the date of the 50% decrease giving rise to such notice, the Partnership shall liquidate all existing positions as promptly as reasonably practicable and shall suspend all Futures Interests trading through the Special Redemption Date. Thereafter, the General Partner shall determine whether to reinstitute Futures Interests trading or to terminate the Partnership. As used herein, "material change in the Partnership's trading policies" shall mean any material change in those trading policies specified in Section 8(c). The Net Asset Value of a Unit shall be determined daily by the General Partner, and the most recent Net Asset Value calculation shall be promptly supplied by the General Partner in writing to any Limited Partner after the General Partner shall have received a written request from such Partner. In addition, no increase (subject to the limits in the fourth paragraph of Section 7(e)) in any of the management, incentive, or brokerage fees payable by the Partnership, or any caps (other than those described in the fourth paragraph of Section 7(e)) on management fees, incentive fees, brokerage commissions or fees, Transaction Fees and Costs, ordinary administrative expenses, or net excess interest or compensating balance benefits, all as described in the Prospectus, may take effect until the first business day following a Redemption Date, PROVIDED that: (i) notice of such increase is mailed to each Limited Partner at least five business days prior to the last date on which a Request for Redemption must be received by the General Partner with respect to the applicable Redemption Date; (ii) such notice shall describe the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15; and (iii) Limited Partners redeeming Units at the first Redemption Date following such notice shall not be subject to the redemption charges described in Section 10(b). A-14 10. TRANSFER; REDEMPTION OF UNITS; EXCHANGE PRIVILEGE. (a) TRANSFER. A Limited Partner may transfer or assign his Units only as provided in this Section 10(a). No transferee or assignee shall become a substituted Limited Partner unless the General Partner first consents to such transfer or assignment in writing, which consent may be withheld in its sole discretion. Any transfer or assignment of Units which is permitted hereunder shall be effective as of the end of the month in which such transfer or assignment is made; PROVIDED, HOWEVER, that the Partnership need not recognize any transfer or assignment until it has received at least 30 days' prior written notice thereof from the Limited Partner, which notice shall set forth the address and social security or taxpayer identification number of the transferee or assignee and the number of Units to be transferred or assigned, and which notice shall be signed by the Limited Partner. No transfer or assignment of Units will be effective or recognized by the Partnership if the transferee or assignee, or the transferor or assignor (if fewer than all Units held by the transferor or assignor are being transferred or assigned), would, by reason of such transfer or assignment, acquire Units which do not meet the minimum initial subscription requirements, as described in the Prospectus; PROVIDED, HOWEVER, that the foregoing restriction shall not apply to transfers or assignment of Units (i) by the way of gift or inheritance, (ii) to any members of the Limited Partner's family, (iii) resulting from divorce, annulment, separation or similar proceedings, or (iv) to any person who would be deemed an Affiliate of the Limited Partner (for purposes of this clause (iv), the term "Affiliate" also includes any partnership, corporation, association, or other legal entity for which such Limited Partner acts as an officer, director or partner). No transfer or assignment shall be permitted unless the General Partner is satisfied that (i) such transfer or assignment would not be in violation of the Act or applicable federal, state, or foreign securities laws, and (ii) notwithstanding such transfer or assignment, the Partnership shall continue to be classified as a partnership rather than as an association taxable as a corporation under the Code. No transfer or assignment of Units shall be effective or recognized by the Partnership if such transfer or assignment would result in the termination of the Partnership for federal income tax purposes, and any attempted transfer or assignment in violation hereof shall be ineffective to transfer or assign any such Units. Any transferee or assignee of Units who has not been admitted to the Partnership as a substituted Limited Partner shall not have any of the rights of a Limited Partner, except that such person shall receive that share of capital and profits and shall have that right of redemption to which his transferor or assignor would otherwise have been entitled and shall remain subject to the other terms of this Agreement binding upon Limited Partners. No Limited Partner shall have any right to approve of any person becoming a substituted Limited Partner. The Limited Partner shall bear all costs (including any attorneys' and accountants' fees) related to such transfer or assignment of his Units. In the event that the General Partner consents to the admission of a substituted Limited Partner pursuant to this Section 10(a), the General Partner is hereby authorized to take such actions as may be necessary to reflect such substitution of a Limited Partner. (b) REDEMPTION. Except as set forth below and in accordance with the terms hereof, a Limited Partner (or any assignee thereof) may withdraw all or part of his unredeemed capital contribution and undistributed profits, if any, by requiring the Partnership to redeem all or part of his Units at the Net Asset Value thereof, reduced as hereinafter described (any such withdrawal being herein referred to as a "Redemption"). The minimum amount of any redemption is 50 Units, unless a Limited Partner is redeeming his entire interest in the Partnership. Units may be redeemed at the option of a Limited Partner as of, but not before, the sixth month-end following the closing at which the Limited Partner first becomes a Limited Partner of the Partnership or a limited partner of any other partnership offering Units pursuant to the Prospectus (all such partnerships shall be defined collectively as the "Spectrum Series Partnerships" or individually as a "Spectrum Series Partnership"). Thereafter, Units may be redeemed as of the end of any month. However, any Unit redeemed at or prior to the end of the twelfth or twenty-fourth full month following the closing at which such Unit was issued will be assessed a redemption charge equal to 2% or 1%, respectively, of the Net Asset Value of a Unit on the date of such redemption. The foregoing charges will be paid to DWR. A Limited Partner who purchased Units pursuant to a Non-Series Exchange (as defined in the Prospectus) will not be subject to the foregoing redemption charges with respect to such Units. The number of Units (determined on a per closing basis), expressed as a percentage of Units purchased, which is not subject to a redemption charge is determined by dividing (a) the dollar amount used in a Non-Series Exchange to purchase Units by (b) the total investment in the Partnership. Limited Partners who redeem units of A-15 limited partnership interest in a Spectrum Series Partnership and have either paid a redemption charge with respect to such units of limited partnership, or have held such units of limited partnership for at least two years and subsequently purchase Units, will not be subject to redemption charges on the new Units under the following conditions: (a) the subscriber must subscribe for new Units prior to the one-year anniversary of the effective date of the redemption of the units of limited partnership, (b) the subscriber will not be subject to redemption charges with respect to the amount of the subscription for the new Units up to the amount of the proceeds of the redemption (net of any redemption charges), and (c) the subscriber must hold the newly acquired Units for six months from the date of purchase before such Units may be redeemed or exchanged pursuant to a Series Exchange. Such subscribers remain subject to the minimum purchase and suitability requirements. In addition, redemption charges may not be imposed for certain large purchasers of units of limited partnership interest in the Spectrum Series Partnerships, as provided in the Prospectus. A Limited Partner who redeems Units pursuant to a Series Exchange will not be subject to redemption charges with respect to the redeemed Units. Units acquired pursuant to a Series Exchange will be deemed as having the same purchase date as the Units exchanged for purposes of determining the applicability of any redemption charges. Furthermore, a Limited Partner redeeming Units at the first Redemption Date following notice of an increase in certain fees in accordance with the fourth paragraph of Section 9 will not be subject to the foregoing redemption charges. Redemptions of Units will be deemed to be in the order in which they are purchased (assuming purchases at more than one closing), with the Units not subject to a redemption charge being deemed to be the first Units purchased at a closing. Redemption of a Limited Partner's Units shall be effective as of the last day of the first month ending after an irrevocable Request for Redemption in proper form shall have been received by the General Partner ("Redemption Date"); PROVIDED, that all liabilities, contingent or otherwise, of the Partnership (except any liability to Partners on account of their capital contributions) shall have been paid or there shall remain property of the Partnership sufficient to pay them. As used herein, "Request for Redemption" shall mean a letter in the form specified by the General Partner and received by the General Partner by 5:00 p.m. (New York City time) at least five business days prior to the date on which such Redemption is to be effective. A form of Request for Redemption is annexed to this Agreement. Additional forms of Request for Redemption may be obtained by written request to the General Partner. Upon Redemption, a Limited Partner (or any assignee thereof) shall receive from the Partnership for each Unit redeemed an amount equal to the Net Asset Value thereof as of the Redemption Date, less any redemption charges and any amount owing by such Partner (and his assignee, if any) to the Partnership pursuant to Section 14(d). If a Redemption is requested by an assignee, all amounts owed to the Partnership under Section 14(d) by the Partner to whom such Unit was sold, as well as all amounts owed by all assignees of such Unit, shall be deducted from the Net Asset Value of such Unit upon Redemption. The General Partner shall endeavor to pay Redemptions within 10 business days after the Redemption Date, except that under special circumstances (including, but not limited to, the inability on the part of the Partnership to liquidate Futures Interests positions or the default or delay in payments which shall be due the Partnership from commodity brokers, banks, or other persons), the Partnership may delay payment to Partners requesting Redemption of Units of the proportionate part of the Net Asset Value of the Units represented by the sums which are the subject of such default or delay. Redemptions will be made by credit to the Limited Partner's customer account with DWR or by check mailed to the Limited Partner if such account is closed. The General Partner may, in its absolute discretion, waive any restrictions or charges applicable to redemptions. The foregoing terms and conditions in this Section 10(b), other than those in the second paragraph hereof prohibiting redemptions before the sixth month-end following the closing at which a person first becomes a Limited Partner, shall also apply to redemptions effected on "Special Redemption Dates" held in accordance with Section 9. The General Partner shall be authorized to execute, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to this Agreement and such other documents as shall be necessary or desirable to reflect any Redemption pursuant to this Section 10(b). (c) EXCHANGE PRIVILEGE. Except as set forth below, a Limited Partner (or any assignee thereof) may redeem his Units effective as of the last business day of any month and authorize the General Partner to use the net proceeds of such redemption to purchase units of limited partnership interest of another A-16 Spectrum Series Partnership (such a transfer between Spectrum Series Partnerships being herein referred to as a "Series Exchange"). Series Exchanges shall only be permitted by a Limited Partner as of, but not before the sixth month-end following the closing at which a Limited Partner first became a limited partner of a Spectrum Series Partnership. The minimum amount of any Series Exchange is 50 Units, unless a Limited Partner is liquidating his entire interest in the Partnership. A Series Exchange shall be effective as of the last business day of the month ending after an Exchange Agreement and Power of Attorney in proper form has been received by the General Partner ("Exchange Date"), provided, that the Partnership has assets sufficient to discharge its liabilities and to redeem Units on the Exchange Date. As used herein, "Exchange Agreement and Power of Attorney" shall mean the form annexed to the Prospectus as Exhibit B, sent by a Limited Partner (or any assignee thereof) to a DWR branch office and received by the General Partner at least 5 business days prior to the Exchange Date. Additional forms of the Exchange Agreement and Power of Attorney may be obtained by written request to the General Partner or from a local DWR branch office. Upon requesting a Series Exchange, a Limited Partner shall have authorized the General Partner to redeem the number of Units specified therein and to utilize the net proceeds of such redemption to purchase an amount of units of limited partnership interest of one or more other Spectrum Series Partnerships as specified in the Exchange Agreement and Power of Attorney. The General Partner shall cause the net proceeds of the redemption to be delivered to the Spectrum Series Partnership(s) issuing and selling units of limited partnership interest to the redeeming Limited Partner, and shall cause to be mailed to such Limited Partner, within 20 business days after such Exchange Date, a written confirmation thereof. At the next closing on the sale of Units following each Exchange Date, the Partnership shall issue and sell Units with a total Net Asset Value equal to the net proceeds of redemptions from limited partners of other Spectrum Series Partnerships requesting Units on a Series Exchange, PROVIDED, that the General Partner, in its capacity as the general partner of each of the Spectrum Series Partnerships, has (i) timely received a properly executed Exchange Agreement and Power of Attorney verifying that such units of limited partnership interest subject to such Series Exchange are owned by the person requesting such Series Exchange and acknowledging that the limited partner remains eligible to purchase Units, and (ii) caused the net proceeds from units of limited partnership interest being redeemed to be transferred to the Partnership in payment of such Units. Each Unit to be purchased with the net proceeds of a redemption of Units of limited partnership interest from a Spectrum Series Partnership shall be issued and sold by the Partnership at a price per Unit equal to 100% of the Net Asset Value of a Unit as of the close of business on the relevant Exchange Date. Each Limited Partner understands that its ability to effect a Series Exchange is conditioned upon units of limited partnership interest of Spectrum Series Partnerships being registered and qualified for sale pursuant to a current Prospectus immediately prior to each Exchange Date. The General Partner shall not have any obligation to have units of limited partnership interest registered. There can be no assurance that any or a sufficient number of units of limited partnership interest will be available for sale on the Exchange Date. If units of limited partnership interest are not registered or qualified for sale under either federal or applicable state securities laws, the General Partner will not be able to effect a Series Exchange for the Limited Partner. Furthermore, certain states may impose significant burdens on, or alter the requirements for, qualifying units of limited partnership interest for sale and in such cases, the General Partner may elect not to continue to qualify units of limited partnership interest for sale in such state or states, and a resident thereof would not be eligible for a Series Exchange. In the event that not all Exchange Agreements and Powers of Attorney can be processed because an insufficient number of units of limited partnership interest are available for sale on an Exchange Date, the General Partner is hereby authorized to allocate units of limited partnership interest in any manner which it deems is reasonable under the circumstances and may allocate a substantial portion of such units of limited partnership interest to new subscribers for Units. The General Partner, on behalf of the Partnership and each Partner, is authorized to execute, file, record, and publish such amendments to this Agreement and such other documents as shall be necessary to reflect any Series Exchange pursuant to this Section 10(c). 11. SPECIAL POWER OF ATTORNEY. Each Limited Partner, by the execution of this Agreement, does irrevocably constitute and appoint the General Partner, with full power of substitution, as his true and lawful agent and attorney-in-fact, in his A-17 name, place, and stead, (a) to execute, acknowledge, swear to, deliver, file, and record in his behalf in the appropriate public offices and publish: (i) this Agreement and the Certificate of Limited Partnership and amendments thereto; (ii) all instruments that the General Partner deems necessary or appropriate to reflect any amendment, change, or modification of this Agreement or the Certificate of Limited Partnership made in accordance with the terms of this Agreement; (iii) certificates of assumed name; and (iv) all instruments that the General Partner deems necessary or appropriate to qualify or maintain the qualification of the Partnership to do business as a foreign limited partnership in other jurisdictions; and (b) to admit additional Limited Partners and, to the extent that it is necessary under the laws of any jurisdiction, to execute, deliver, and file amended certificates or agreements of limited partnership or other instruments to reflect such admission. The Power of Attorney granted herein shall be irrevocable and deemed to be a power coupled with an interest and shall survive the incapacity, death, dissolution, liquidation, or termination of a Limited Partner. Each Limited Partner hereby agrees to be bound by any representation made by the General Partner and by any successor thereto acting in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to execute a special Power of Attorney on a document separate from this Agreement. In the event of any conflict between this Agreement and any instruments filed by such attorney-in-fact pursuant to the Power of Attorney granted in this Section 11, this Agreement shall control. 12. WITHDRAWAL OF PARTNERS. The Partnership shall terminate and be dissolved upon the withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner (unless a new general partner(s) is elected pursuant to Section 15(c) and such remaining general partner(s) shall have elected to continue the business of the Partnership, which any remaining general partner(s) shall have the right to do). The General Partner shall not withdraw or assign all of its interest at any time without giving the Limited Partners 120 days' prior written notice of its intention to withdraw or assign, and, if the Limited Partners thereupon elect a new general partner or partners pursuant to Section 15(c) which elect to continue the business of the Partnership, the withdrawing General Partner shall pay all reasonable expenses incurred by the Partnership in connection with such withdrawal. The General Partner shall be paid the Net Asset Value of its interests in the Partnership as of the date of such withdrawal. The death, incompetency, withdrawal, insolvency, bankruptcy, termination, liquidation, or dissolution of a Limited Partner shall not terminate or dissolve the Partnership, and such Limited Partner, his estate, custodian, or personal representative shall have no right to withdraw or value such Limited Partner's interest in the Partnership except as provided in Section 10. Each Limited Partner (and any assignee of such Partner's interest) expressly agrees that in the event of his death, he waives on behalf of himself and his estate and he directs the legal representative of his estate and any person interested therein to waive the furnishing of any inventory, accounting, or appraisal of the assets of the Partnership and any right to an audit or examination of the books of the Partnership (except to the extent permissible under the sixth paragraph of Section 8(e)). 13. NO PERSONAL LIABILITY FOR RETURN OF CAPITAL. Subject to Section 14, neither the General Partner, DWR, nor any Affiliate thereof shall be personally liable for the return or repayment of all or any portion of the capital or profits of any Partner (or assignee), it being expressly agreed that any such return of capital or profits made pursuant to this Agreement shall be made solely from the assets (which shall not include any right of contribution from the General Partner) of the Partnership. 14. STANDARD OF LIABILITY; INDEMNIFICATION. (a) STANDARD OF LIABILITY. The General Partner and its Affiliates shall not be liable to the Partnership, the Limited Partners, or its or their successors or assigns, for any act, omission, conduct or activity undertaken by or on behalf of the Partnership which the General Partner determines, in good faith, to be in the best interests of the Partnership, unless such act, omission, conduct, or activity constituted misconduct or negligence. (b) INDEMNIFICATION BY THE PARTNERSHIP. The Partnership shall indemnify, defend, and hold harmless the General Partner and its Affiliates from and against any loss, liability, damage, cost, or expense (including attorneys' and accountants' fees and expenses incurred in defense of any demands, claims, or lawsuits) actually and reasonably incurred arising from any act, omission, activity, or conduct A-18 undertaken by or on behalf of the Partnership, including, without limitation, any demands, claims, or lawsuits initiated by a Limited Partner (or assignee thereof), PROVIDED that (1) the General Partner has determined, in good faith, that the act, omission, activity, or conduct giving rise to the claim for indemnification was in the best interests of the Partnership, and (2) the act, omission, activity, or conduct that was the basis for such loss, liability, damage, cost, or expense was not the result of misconduct or negligence. Notwithstanding anything to the contrary contained in the foregoing, neither the General Partner nor any of its Affiliates nor any person acting as a broker-dealer shall be indemnified by the Partnership for any losses, liabilities, or expenses arising from or out of an alleged violation of federal or state securities laws unless (1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (3) a court of competent jurisdiction approves a settlement of the claims against the particular indemnitee and finds that indemnification of the settlement and related costs should be made, PROVIDED, with regard to such court approval, the indemnitee must apprise the court of the position of the SEC, and the positions of the respective securities administrators of Massachusetts, Missouri, Tennessee, and/or those other states and jurisdictions in which the plaintiffs claim that they were offered or sold Units, with respect to indemnification for securities laws violations before seeking court approval for indemnification. Furthermore, in any action or proceeding brought by a Limited Partner in the right of the Partnership to which the General Partner or any Affiliate thereof is a party defendant, any such person shall be indemnified only to the extent and subject to the conditions specified in the Act and this Section 14(b). The Partnership shall make advances to the General Partner or its Affiliates hereunder only if: (1) the demand, claim, lawsuit, or legal action relates to the performance of duties or services by such persons to the Partnership; (2) such demand, claim, lawsuit, or legal action is not initiated by a Limited Partner; and (3) such advances are repaid, with interest at the legal rate under Delaware law, if the person receiving such advance is ultimately found not to be entitled to indemnification hereunder. Nothing contained in this Section 14(b) shall increase the liability of any Limited Partner to the Partnership beyond the amount of his unredeemed capital contribution, undistributed profits, if any, and any amounts received on distributions and redemptions and deemed received on Series Exchanges, together with interest thereon. All rights to indemnification and payment of attorneys' and accountants' fees and expenses shall not be affected by the termination of the Partnership or the withdrawal, insolvency, or dissolution of the General Partner. The Partnership shall not incur the cost of that portion of liability insurance which insures the General Partner and its Affiliates for any liability as to which the General Partner and its Affiliates are prohibited from being indemnified. (c) AFFILIATE. As used in this Agreement, the term "Affiliate" of a person shall mean: (i) any natural person, partnership, corporation, association, or other legal entity directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of such person; (ii) any partnership, corporation, association, or other legal entity 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such person; (iii) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with, such person; or (iv) any officer, director or partner of such person. Notwithstanding the foregoing, solely for purposes of determining eligibility for indemnification under Section 14(b), the term "Affiliate" shall include only those persons performing services for the Partnership. (d) INDEMNIFICATION BY PARTNERS. In the event that the Partnership is made a party to any claim, demand, dispute, or litigation or otherwise incurs any loss, liability, damage, cost, or expense as a result of, or in connection with, any Partner's (or assignee's) obligations or liabilities unrelated to the Partnership's business, such Partner (or assignees cumulatively) shall indemnify, defend, hold harmless and reimburse the Partnership for such loss, liability, damage, cost and expense to which the Partnership shall become subject (including attorneys' and accountants' fees and expenses). 15. AMENDMENTS; MEETINGS. (a) AMENDMENTS WITH CONSENT OF THE GENERAL PARTNER. If, at any time during the term of the Partnership, the General Partner shall deem it necessary or desirable to amend this Agreement, such amendment shall be effective only if embodied in an instrument approved by the General Partner and by A-19 Limited Partners owning more than 50% of the Units then outstanding, and if made in accordance with, and to the extent permissible under, the Act. Any amendment to this Agreement or actions taken pursuant to this Section 15 that shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. Notwithstanding the foregoing, the General Partner shall be authorized to amend this Agreement without the consent of any Limited Partner in order to: (i) change the name of the Partnership or cause the Partnership to transact business under another name; (ii) clarify any inaccuracy or any ambiguity, or reconcile any inconsistent provisions herein; (iii) make any amendment to this Agreement that is not adverse to the Limited Partners; (iv) effect the intent of the allocations proposed herein to the maximum extent possible in the event of a change in the Code or the interpretations thereof affecting such allocations; (v) attempt to ensure that the Partnership is not taxed as an association taxable as a corporation for federal income tax purposes; (vi) qualify or maintain the qualification of the Partnership as a limited partnership in any jurisdiction; (vii) delete or add any provision of or to this Agreement required to be deleted or added by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or in order to opt to be governed by any amendment or successor to the Act, or to comply with applicable law; (viii) make any modification to this Agreement to reflect the admission of additional or substitute general partners and to reflect any modification to the Net Worth requirements applicable to the General Partner and any other general partner, as contemplated by Section 5 hereof; (ix) make any amendment that is appropriate or necessary, in the opinion of the General Partner, to prevent the Partnership or the General Partner or its directors, officers or controlling persons from in any manner being subject to the provisions of the Investment Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940, as amended (the "Advisers Act"), or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended; and (x) to make any amendment that is appropriate or necessary, in the opinion of the General Partner, to qualify the Partnership under the 1940 Act, and any persons under the 1940 Act and the Advisers Act, if the General Partner reasonably believes that doing so is necessary. Any such supplemental or amendatory agreement shall be adhered to and have the same force and effect from and after its effective date as if the same had originally been embodied in, and formed a part of, this Agreement; PROVIDED, HOWEVER, that no such supplemental or amendatory agreement shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses or distributions to which any Partner is entitled. (b) MEETINGS. Any Limited Partner or his authorized attorney or agent, upon written request to the General Partner, delivered either in person or by certified mail, and upon payment of reasonable duplicating and postage costs, shall be entitled to obtain from the General Partner by mail a list of the names and addresses of record of all Limited Partners and the number of Units owned by each. Upon receipt of a written request, signed by Limited Partners owning at least 10% of the Units then owned by Limited Partners, that a meeting of the Partnership be called to vote upon any matter upon which all Limited Partners may vote pursuant to this Agreement, the General Partner, by written notice to each Limited Partner of record sent by certified mail or delivered in person within 15 days after such receipt, shall call a meeting of the Partnership. Such meeting shall be held at least 30 but not more than 60 days after the mailing of such notice, and such notice shall specify the date, a reasonable place and time, and the purpose of such meeting. (c) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF THE GENERAL PARTNER. At any meeting of the Limited Partners, upon the affirmative vote (which may be in person or by proxy) of Limited Partners owning more than 50% of the Units then owned by Limited Partners, the following actions may be taken without the consent of the General Partner: (i) this Agreement may be amended in accordance with, and only to the extent permissible under, the Act; PROVIDED, HOWEVER, that no such amendment shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses, or distributions to which any Partner is entitled; (ii) the Partnership may be dissolved; (iii) the General Partner may be removed and replaced; (iv) a new general partner or general partners may be elected if the General Partner terminates or liquidates or elects to withdraw from the Partnership pursuant to Section 12, or becomes insolvent, bankrupt, or is dissolved; (v) any contracts with the General Partner or any of its Affiliates may be terminated without penalty on not less than 60 days' prior written notice; and (vi) the sale of all or substantially all of the assets of the Partnership may be approved; PROVIDED, HOWEVER, that no such action shall adversely affect the status of the Limited Partners as limited partners under the Act or the A-20 classification of the Partnership as a partnership under the federal income tax laws; and PROVIDED FURTHER, that Units owned by the General Partner and any Affiliate thereof shall not be voted on the matters described in clauses (iii) and (v) above. Any action which shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. (d) ACTION WITHOUT MEETING. Notwithstanding contrary provisions of this Section 15 covering notices to, meetings of, and voting by Limited Partners, any action required or permitted to be taken by Limited Partners at a meeting or otherwise may be taken by Limited Partners without a meeting, without prior notice, and without a vote if a consent in writing setting forth the action so taken shall be signed by Limited Partners owning Units having not fewer than the minimum number of votes that would be necessary to authorize or take such action at a meeting of Limited Partners at which all outstanding Units shall have been present and voted. Notice of the taking of action by Limited Partners without a meeting by less than unanimous written consent of the Limited Partners shall be given to those Limited Partners who shall not have consented in writing within seven business days after the occurrence thereof. (e) AMENDMENTS TO CERTIFICATE OF LIMITED PARTNERSHIP. If an amendment to this Agreement shall be made pursuant to this Section 15, the General Partner shall be authorized to execute, acknowledge, swear to, deliver, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to the Certificate of Limited Partnership as shall be necessary or desirable to reflect such amendment. 16. INDEX OF DEFINED TERMS.
DEFINED TERM SECTION - ------------ --------- 1940 Act.................................................... 15(a) Act......................................................... 1 Advisers Act................................................ 15(a) Affiliate................................................... 14(c) Agreement................................................... Preamble CEAct....................................................... 8(e) Certificate of Limited Partnership.......................... 1 CFTC........................................................ 3 Code........................................................ 7(c)(4) Commodity Broker............................................ 6 Customer Agreement.......................................... 8(b) Determination Date.......................................... 7(b) DWR......................................................... 6 Exchange Agreement and Power of Attorney.................... 10(c) Exchange Date............................................... 10(c) Futures Interests........................................... 3 General Partner............................................. Preamble Limited Partners............................................ Preamble Management Agreement........................................ 8(b) MSDW........................................................ 6 NASAA Guidelines............................................ 5 Net Asset Value............................................. 7(d)(2) Net Assets.................................................. 7(d)(1) NFA......................................................... 6 Non-Series Exchange......................................... 10(b) Partners.................................................... Preamble Partnership................................................. 1 Prospectus.................................................. 6 Pyramiding.................................................. 8(c)(5) Redemption.................................................. 10(b) Redemption Date............................................. 10(b) Request for Redemption...................................... 10(b) SEC......................................................... 5 Selling Agent............................................... 6 Series Exchange............................................. 10(c)
A-21
DEFINED TERM SECTION - ------------ --------- Special Redemption Date..................................... 9 Spectrum Series Partnership(s).............................. 10(b) Trading Advisor............................................. 6 Trading Profits............................................. 7(e) Transaction Fees and Costs.................................. 7(e) Unit(s) of General Partnership Interest..................... 6 Unit(s)..................................................... 6
17. GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE, INCLUDING, SPECIFICALLY, THE ACT (WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES); PROVIDED, HOWEVER, THAT CAUSES OF ACTION FOR VIOLATIONS OF FEDERAL OR STATE SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS SECTION 17. 18. MISCELLANEOUS. (a) PRIORITY AMONG LIMITED PARTNERS. Except as otherwise specifically set forth in this Agreement, no Limited Partner shall be entitled to any priority or preference over any other Limited Partner in regard to the affairs of the Partnership. (b) NOTICES. All notices and requests to the General Partner under this Agreement (other than Requests for Redemption, and notices of assignment or transfer, of Units) shall be in writing and shall be effective upon personal delivery or, if sent by registered or certified mail, postage prepaid, addressed to the General Partner at Two World Trade Center, 62nd Floor, New York, New York 10048 (or such other address as the General Partner shall have notified the Limited Partners), upon the deposit of such notice in the United States mail. Requests for Redemption, and notices of assignment or transfer of Units shall be effective upon timely receipt by the General Partner. Except as otherwise provided herein, all reports and notices hereunder shall be in writing and shall be sent by first-class mail to the last known address of the Limited Partner. (c) BINDING EFFECT. This Agreement shall inure to the benefit of, and be binding upon, all of the parties, their successors, assigns as permitted herein, custodians, estates, heirs, and personal representatives. For purposes of determining the rights of any Partner or assignee hereunder, the Partnership and the General Partner may rely upon the Partnership's records as to who are Partners and assignees, and all Partners and assignees agree that their rights shall be determined and that they shall be bound thereby, including all rights which they may have under Section 15. (d) CAPTIONS. Captions in no way define, limit, extend, or describe the scope of this Agreement nor the effect of any of its provisions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Additional Limited Partners: General Partner: By: Demeter Management Demeter Management Corporation Corporation, General Partner, as Authorized Agent and Attorney-in-Fact By: ---------------------------------------- By: ---------------------------------------- Name: Name: Title: Title:
A-22 ANNEX A TO LIMITED PARTNERSHIP AGREEMENT MFAD USE ONLY:_______________ CLOSING DATE:_______________ REQUEST FOR REDEMPTION: MORGAN STANLEY DEAN WITTER MANAGED FUTURES FUNDS THIS IRREVOCABLE REQUEST FOR REDEMPTION SHOULD BE DELIVERED TO A LIMITED PARTNER'S LOCAL DEAN WITTER BRANCH OFFICE AND MUST BE RECEIVED BY THE GENERAL PARTNER (DEMETER MANAGEMENT CORPORATION, TWO WORLD TRADE CENTER, 62ND FLOOR, NEW YORK, N.Y., 10048) AT LEAST 5 BUSINESS DAYS PRIOR TO THE LAST DAY OF THE MONTH IN WHICH THE REDEMPTION IS TO BE EFFECTIVE. THIS FORM CANNOT BE FAXED. ________________________, 20____ _____________________________________________ [DATE] [PRINT OR TYPE DEAN WITTER ACCOUNT NUMBER] I hereby request redemption (effective as of the next applicable date as of which redemption is permitted as set forth in the Limited Partnership Agreement of the Partnership for which redemption is requested, subject to all terms and conditions set forth therein) of my capital account in an amount equal to the respective Net Asset Value, as defined in the Limited Partnership Agreement, of the following Unit(s) of Limited Partnership Interest ("UNITS"), less any amounts specified in the Limited Partnership Agreement. COMPLETE ONLY ONE SECTION -- A, B, C, OR D -- PER FORM SECTION A SPECTRUM SERIES SHALL ONLY REDEEM UNITS IN A MINIMUM AMOUNT OF 50 UNITS, UNLESS A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH PARTNERSHIP. [DWSF] Spectrum Select Entire Interest Units [DWST] Spectrum Technical Entire Interest Units [DWSS] Spectrum Strategic Entire Interest Units [DWSB] Spectrum Global Balanced Entire Interest Units [DWSX] Spectrum Currency Entire Interest Units [DWSC] Spectrum Commodity Entire Interest Units SECTION B CORNERSTONE FUNDS SHALL ONLY REDEEM $1,000 INCREMENTS OR WHOLE UNITS UNLESS A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH PARTNERSHIP. [CFCFB] Cornerstone Fund II Entire Interest Units $ ,000 [CFCFC] Cornerstone Fund III Entire Interest Units $ ,000 [CFCFD] Cornerstone Fund IV Entire Interest Units $ ,000 SECTION C CHARTER SERIES SHALL ONLY REDEEM UNITS IN A MINIMUM AMOUNT OF 100 UNITS, UNLESS A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH PARTNERSHIP. [MSCG] Charter Graham Entire Interest Units [MSCM] Charter Millburn Entire Interest Units [MSCW] Charter Welton Entire Interest Units [MSCD] Charter DWFCM Entire Interest Units SECTION D OTHER MANAGED FUTURES FUNDS SHALL ONLY REDEEM $1,000 INCREMENTS OR WHOLE UNITS UNLESS A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH PARTNERSHIP. MARK ONE FUND ONLY (USE ONE FORM PER FUND): Entire Interest [CFF] Columbia Futures Fund [PGF] Multi-Market Portfolio [DFF] Diversified Futures Fund [PPF] Principal Plus Fund Units [DFF2] Diversified Futures Fund II [PSF] Portfolio Strategy Fund [DFF3] Diversified Futures Fund III [WCF] World Currency Fund $ ,000 [GPP] Global Perspective Portfolio
A-23 ACCOUNT INFORMATION AND SIGNATURES I understand that I may only redeem Units at such times as are specified in the Limited Partnership Agreement and that, under certain circumstances described therein, I may be subject to a redemption charge. I (either in my individual capacity or as an authorized representative of an entity, if applicable) hereby represent and warrant that I am the true, lawful and beneficial owner of Units (or fractions thereof) to which this Request for Redemption relates, with full power and authority to request redemption. The Units (or fractions thereof) which are the subject of this request are not subject to any pledge or otherwise encumbered in any fashion. My signature has been represented by a member of a registered national securities exchange. SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED TYPE OR PRINT ALL INFORMATION BELOW - -------------------------------------------------------------------------------- 1. ACCOUNT INFORMATION - -------------------------------------------------------------------------------- ..................................... .................................... (Name of Limited Partner) (Dean Witter Account Number) Address: ....................................................................... (Street) ............................................................................... City State (Province) (Zip Code or Postal Code) - -------------------------------------------------------------------------------- 2.a. SIGNATURE(S) OF INDIVIDUAL PARTNER(S) OR ASSIGNEE(S) INCLUDING IRAS - -------------------------------------------------------------------------------- X .................................... .................................... (Signature) (Date) X .................................... .................................... (Signature) (Date) - -------------------------------------------------------------------------------- 2.b. SIGNATURE OF ENTITY PARTNER OR ASSIGNEE - -------------------------------------------------------------------------------- .................................. By: X .................................. (Name of Entity) (Authorized officer, partner, trustee, or custodian. If a corporation, include certified copy of authorized resolution.) - -------------------------------------------------------------------------------- 3. BRANCH MANAGER AND ACCOUNT EXECUTIVE USE ONLY - -------------------------------------------------------------------------------- We, the undersigned Account Executive and Branch Manager, represent that the above signature(s) is/are true and correct. X .................................... X ................................... (Account Executive MUST sign) (Branch Manager MUST sign) ........................................ (Branch Telephone Number) Please enter a SELL order upon receipt of a completed Request for Redemption. A-24 EXHIBIT B SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY MORGAN STANLEY DEAN WITTER SPECTRUM SERIES UNITS OF LIMITED PARTNERSHIP INTEREST SUBSCRIPTION AND EXCHANGE INSTRUCTIONS If you wish to purchase Units of one or more of the Morgan Stanley Dean Witter Spectrum Series Partnerships, please follow the instructions below. Instructions relating to "Cash Subscribers" should be followed only if you are purchasing Units for cash. Instructions relating to "Exchange Subscribers" should be followed only if you are redeeming units in another commodity pool which the General Partner serves as the general partner and commodity pool operator in a Non-Series Exchange, or if you are redeeming Units in a Morgan Stanley Dean Witter Spectrum Series Partnership pursuant to a Series Exchange. SUBSCRIPTION INSTRUCTIONS YOU SHOULD CAREFULLY READ AND REVIEW THE MORGAN STANLEY DEAN WITTER SPECTRUM SERIES PROSPECTUS, DATED - , 2001, (THE "PROSPECTUS"), AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY ("AGREEMENT"). IN READING A PROSPECTUS, PAY PARTICULAR ATTENTION TO THE MATTERS DISCUSSED UNDER "RISK FACTORS," "CONFLICTS OF INTEREST" AND "DESCRIPTION OF CHARGES." BY SIGNING THE AGREEMENT, YOU WILL BE DEEMED TO MAKE EACH APPLICABLE REPRESENTATION AND WARRANTY, AND SATISFY ANY APPLICABLE SPECIAL STATE SUITABILITY REQUIREMENT, SET FORTH IN THIS AGREEMENT ON PAGES B-2-B-4, SO PLEASE MAKE SURE THAT YOU SATISFY ALL APPLICABLE PROVISIONS IN THOSE SECTIONS BEFORE SIGNING THIS AGREEMENT. CASH SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND BLANKS ONLY ON PAGES B-7 AND B-8, AND EXCHANGE SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND BLANKS ONLY ON PAGES B-9 AND B-10, USING BLACK INK, AS FOLLOWS: Item 1 FOR CASH SUBSCRIBERS --Enter your Dean Witter Reynolds Inc. ("DWR") Account (pages B-7--B-8) and Exchange Number. Subscribers (pages B-9-B-10) --Enter your Social Security Number or Taxpayer ID Number. If you are subscribing on behalf of an entity (such as a trust, partnership or corporation), check the appropriate box to indicate the type of entity. If the Units are to be owned by joint tenants, either person's Social Security Number may be used. --If you are subject to taxation in the United States, review the representation relating to backup withholding tax, and enter your taxable year, if other than calendar year, under "United States Taxable Investors Only" on page B-7 (for Cash Subscribers) or page B-9 (for Exchange Subscribers). If you are a non-United States person, review the representation relating to your classification as a non-resident alien for United States federal income tax purposes under "Non-United States Investors Only" on page B-7 (for Cash Subscribers) or page B-9 (for Exchange Subscribers). YOU MUST SIGN BELOW THE APPLICABLE TAX REPRESENTATION IN ITEM 1 ON PAGE B-7 OR B-9. --Enter the exact name in which your Units are to be held based on ownership type, and enter residency and other information. --Check box if you are a non-resident alien that is a dealer in commodities or is otherwise engaged in a trade or business within the U.S. --If there is a co-subscriber, trustee or custodian, complete applicable information. Item 1 FOR CASH SUBSCRIBERS (PAGE B-7) --Enter the dollar amount of the subscription for each Partnership whose Units you wish to purchase. Item 1 FOR EXCHANGE --Enter the symbol(s) of the limited partnership(s) from SUBSCRIBERS (PAGE B-9) which you are redeeming units; specify the quantity to be redeemed (entire interest or number of whole units). Item 2 FOR CASH SUBSCRIBERS (PAGE B-8) --You must execute the Agreement Signature Page on page B-8 AND EXCHANGE SUBSCRIBERS (for Cash Subscribers) or page B-10 (for Exchange (PAGE B-10) Subscribers). Item 3 FOR CASH SUBSCRIBERS (PAGE B-8) --An MSDW Financial Advisor and Branch Manager must complete AND EXCHANGE SUBSCRIBERS the required information. (PAGE B-10)
MSDW FINANCIAL ADVISOR: This Agreement must be mailed to Demeter Management Corporation at Two World Trade Center, 62nd Floor, New York, New York 10048-0026. B-1 MORGAN STANLEY DEAN WITTER SPECTRUM SERIES --------------------- SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY If you are subscribing for Units of Limited Partnership Interest ("Units") in the Morgan Stanley Dean Witter Spectrum Series, consisting of six commodity pool limited partnerships, Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Technical L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Currency L.P., and Morgan Stanley Dean Witter Spectrum Commodity L.P. (each, a "Partnership," and collectively, the "Partnerships"), you should carefully read and review the Prospectus. Capitalized terms used below and not defined in this Subscription and Exchange Agreement and Power of Attorney ("Agreement") are defined (and described in detail) in the Prospectus. FOR CASH SUBSCRIBERS: By executing the Cash Subscription Signature Page of this Agreement, you will irrevocably subscribe for Units of one or more of the Partnerships at the price per Unit described in the Prospectus. FOR EXCHANGE SUBSCRIBERS: By executing the Exchange Subscription Signature Page of this Agreement, you will irrevocably redeem the units of limited partnership interest of each limited partnership indicated on the signature page of this Agreement and, with the proceeds of that redemption, irrevocably subscribe for Units of one or more of the Partnerships at the price per Unit described in the Prospectus. NOTWITHSTANDING THE FOREGOING, YOU MAY REVOKE THIS AGREEMENT, AND RECEIVE A FULL REFUND OF THE SUBSCRIPTION AMOUNT YOU PAID, PLUS ANY ACCRUED INTEREST THEREON (OR REVOKE THE REDEMPTION OF UNITS IN THE OTHER LIMITED PARTNERSHIP IN THE CASE OF AN EXCHANGE), WITHIN FIVE BUSINESS DAYS AFTER EXECUTION OF THIS AGREEMENT OR NO LATER THAN 3:00 P.M., NEW YORK CITY TIME, ON THE DATE OF THE APPLICABLE MONTHLY CLOSING, WHICHEVER COMES FIRST, BY DELIVERING WRITTEN NOTICE TO YOUR MSDW FINANCIAL ADVISOR. If this Agreement is accepted, you agree to: (i) contribute your subscription to each Partnership designated on the Signature Page of this Agreement; and (ii) be bound by the terms of each such Partnership's Amended and Restated Limited Partnership Agreement, included as Exhibit A to the applicable Prospectus or Prospectuses (the "Limited Partnership Agreement"). BY EXECUTING THE SIGNATURE PAGE OF THIS AGREEMENT, YOU SHALL BE DEEMED TO HAVE EXECUTED THIS AGREEMENT AND THE LIMITED PARTNERSHIP AGREEMENT (INCLUDING THE POWERS OF ATTORNEY IN BOTH AGREEMENTS). - -------------------------------------------------------------------------------- PAYMENT INSTRUCTIONS - -------------------------------------------------------------------------------- FOR CASH SUBSCRIBERS: You must pay your subscription amount by charging your Customer Account with DWR (the "Customer Account"). In the event that you do not have a Customer Account or do not have sufficient funds in your existing Customer Account, you must make appropriate arrangements with your MSDW financial advisor. If you don't have a financial advisor, contact your local MSDW branch office. Payment must NOT be mailed to the General Partner at its offices in New York City. Any such payment will not be accepted by the General Partner and will be returned to you for proper placement with the MSDW branch office where your Customer Account is maintained. By executing the Signature Page of this Agreement, you authorize and direct the General Partner and DWR to transfer the appropriate amount from your Customer Account to the Escrow Account. FOR EXCHANGE SUBSCRIBERS: You must pay your subscription amount by applying the proceeds from the redemption of your limited partnership units in one of the Partnerships or another commodity pool which the General Partner serves as the general partner and commodity pool operator. You may only redeem units at such times as are specified in the limited partnership agreement for that commodity pool, and under certain circumstances described in that agreement you may be subject to a redemption charge. - -------------------------------------------------------------------------------- REPRESENTATIONS AND WARRANTIES - -------------------------------------------------------------------------------- By executing the Signature Page of this Agreement, you (for yourself and any co-subscriber, and, if you are signing on behalf of an entity, on behalf of and with respect to that entity and its shareholders, partners, beneficiaries or members), represent and warrant to the General Partner and each Partnership whose Units you are purchasing, as follows (AS USED BELOW, THE TERMS "YOU" AND "YOUR" REFER TO YOU AND YOUR CO-SUBSCRIBER, IF ANY, OR IF YOU ARE SIGNING ON BEHALF OF AN ENTITY, THAT ENTITY): (1) You have received a copy of the Prospectus, including each Limited Partnership Agreement. (2) You are of legal age to execute this Agreement and are legally competent to do so. (3) You satisfy the applicable financial suitability and minimum investment requirements, as set forth below under the caption "State Suitability Requirements" (or in a special Supplement to the Prospectus) for residents of B-2 the State in which you reside. You agree to provide any additional documentation requested by the General Partner, as may be required by the securities administrators of certain states, to confirm that you meet the applicable minimum financial suitability standards to invest in the Partnerships. (4) The address set forth on the Signature Page is your true and correct residence and you have no present intention of becoming a resident of any other state or country. All the information that you have provided on the Signature Page is correct and complete as of the date of this Agreement, and, if there should be any material change in such information prior to your admission as a Limited Partner, you will immediately furnish such revised or corrected information to the General Partner. (5) If you are representing an employee benefit plan, to the best of your knowledge, neither the General Partner, DWR, any Additional Seller, any Trading Advisor, nor any of their respective affiliates: (a) has investment discretion with respect to the investment of your plan assets; (b) has authority or responsibility to give or regularly gives investment advice with respect to such plan assets for a fee and pursuant to an agreement or understanding that such advice (i) will serve as a primary basis for investment decisions with respect to such plan assets and (ii) will be based on the particular investment needs of the plan; or (c) is an employer maintaining or contributing to that plan. For purposes of this representation (5), an "employee benefit plan" includes plans and accounts of various types (including their related trusts) which provide for the accumulation of a portion of an individual's earnings or compensation, as well as investment income earned thereon, free from federal income tax until such time as funds are distributed from the plan, and include corporate "pension" and profit-sharing plans, "simplified employee pension plans," "Keogh" plans for self-employed individuals, and individual retirement accounts ("IRAs"). (6) Unless representation (7) or (8) below is applicable, your subscription is made with your funds for your own account and not as trustee, custodian or nominee for another. (7) If you are subscribing as custodian for a minor, either (a) the subscription is a gift you have made to that minor and is not made with that minor's funds, in which case the representations as to net worth and annual income below apply only to you, as the custodian; or (b) if the subscription is not a gift, the representations as to net worth and annual income below apply only to that minor. (8) If you are subscribing as a trustee or custodian of an employee benefit plan or of an IRA at the direction of the beneficiary of that plan or IRA, the representations herein apply only to the beneficiary of that plan or IRA. (9) If you are subscribing in a representative capacity, you have full power and authority to purchase Units and enter into and be bound by this Agreement on behalf of the entity for which you are purchasing the Units, and that entity has full right and power to purchase the Units and enter into and be bound by this Agreement and become a Limited Partner pursuant to each applicable Limited Partnership Agreement. (10) You either: (a) are not required to be registered with the Commodity Futures Trading Commission ("CFTC") or to be a member of the National Futures Association ("NFA"); or (b), if so required, you are duly registered with the CFTC and are a member in good standing of the NFA. It is an NFA requirement that the General Partner attempt to verify that any person or entity that seeks to purchase Units be duly registered with the CFTC and a member of the NFA, if required. You agree to supply the General Partner with such information as the General Partner may reasonably request in order to attempt such verification. Certain entities that acquire Units may, as a result, themselves become "commodity pools" within the intent of applicable CFTC and NFA rules, and their sponsors, accordingly, may be required to register as "commodity pool operators." ADDITIONAL REPRESENTATION AND WARRANTY FOR EXCHANGE SUBSCRIBERS: (11) You are the true, lawful, and beneficial owner of the units of limited partnership interest (or fractions thereof) to be redeemed pursuant to this Agreement, with full power and authority to request redemption and a subsequent purchase of Units. The units of limited partnership interest (or fractions thereof) which you are redeeming are not subject to any pledge or are otherwise encumbered in any fashion. By making the representations and warranties set forth above, you should be aware that you have not waived any rights of action which you may have under applicable federal or state securities laws. Federal and state securities laws provide that any such waiver would be unenforceable. You should be aware, however, that the representations and warranties set forth above may be asserted in the defense of a Partnership, the General Partner, DWR, Morgan Stanley Co. Incorporated, Morgan Stanley & Co. International Limited, any Additional Seller, any Trading Advisor, or others in any subsequent litigation or other proceeding. B-3 - -------------------------------------------------------------------------------- STATE SUITABILITY REQUIREMENTS - -------------------------------------------------------------------------------- Except as indicated below, you must have a net worth (exclusive of home, furnishings, and automobiles) of at least $75,000 or, failing that standard, have both a net worth (same exclusions) of at least $30,000 and an annual gross income of at least $30,000. If you are subscribing with your spouse as joint owners, you may count your joint net worth and joint income in satisfying these requirements, as well as the special requirements described below. You must also make a minimum aggregate investment of $5,000 or $2,000 in the case of IRAs or, in the case of a Non-Series Exchange, the lesser of (i) $5,000 ($2,000 in the case of an IRA); (ii) the proceeds from the redemption of five units (two units in the case of an IRA) from commodity pools other than any of the Morgan Stanley Dean Witter Charter Series of partnerships (each, a "Charter Partnership"); (iii) the proceeds from the redemption of 500 units (200 units in the case of an IRA) from any Charter Partnership; or (iv) the proceeds from the redemption of your entire interest in any other commodity pool which the General Partner serves as general partner and commodity pool operator. However, the states listed below (or, in certain cases, in special Supplements to the Prospectus attached thereto) have more restrictive suitability or minimum investment requirements for their residents. Please read the following list to make sure that you meet the minimum suitability and/or investment requirements for the state in which you reside. (As used below, "NW" means net worth exclusive of home, furnishings, and automobiles; "AI" means annual gross income; and "TI" means annual taxable income for federal income tax purposes.) ALABAMA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. ALASKA: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI. ARIZONA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. ARKANSAS: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. CALIFORNIA: $100,000 NW and $50,000 AI. INDIANA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. IOWA: (1) The minimum initial investment for IRAs is $3,000; and (2) you have at least (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI. KANSAS: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. KENTUCKY: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. MAINE: (a) $200,000 NW, or (b) $50,000 NW and $50,000 AI. MASSACHUSETTS: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI. MICHIGAN: (a) $225,000 NW and investment may not exceed 10% of your NW, or (b) $60,000 NW and $60,000 AI and investment may not exceed 10% of your NW. MISSISSIPPI: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. MISSOURI: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI. NEBRASKA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. NEW HAMPSHIRE: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. NEW MEXICO: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. NORTH CAROLINA: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI. OHIO: (1) (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI; and (2) if you are purchasing Units of Spectrum Currency or Spectrum Commodity, the investment may not exceed 10% of your NW. OKLAHOMA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. OREGON: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. PENNSYLVANIA: (1) (a) $175,000 NW, or (b) $100,000 NW and $50,000 TI; and (2) if you have less than $1,000,000 NW, the investment may not exceed 10% of your NW. SOUTH DAKOTA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. TENNESSEE: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI. TEXAS: (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI. VERMONT: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI. WASHINGTON: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
- -------------------------------------------------------------------------------- ACCEPTANCE OF THE LIMITED PARTNERSHIP AGREEMENTS - -------------------------------------------------------------------------------- You agree that as of the date that your name is entered on the books of a Partnership, you shall become a Limited Partner of that Partnership. You also agree to each and every term of the Limited Partnership Agreement of that Partnership as if you signed that Agreement. You further agree that you will not be issued a certificate evidencing the Units that you are purchasing, but that you will receive a confirmation of purchase in DWR's customary form. B-4 - -------------------------------------------------------------------------------- POWER OF ATTORNEY AND GOVERNING LAW - -------------------------------------------------------------------------------- You hereby irrevocably constitute and appoint Demeter Management Corporation, the General Partner of each Partnership, as your true and lawful Attorney-in-Fact, with full power of substitution, in your name, place, and stead: (1) to do all things necessary to admit you as a Limited Partner of each Partnership requested below, and such other Partnership(s) of the Dean Witter Spectrum Series as you may request from time to time; (2) to admit others as additional or substituted Limited Partners to such Partnership(s) so long as such admission is in accordance with the terms of the applicable Limited Partnership Agreement or any amendment thereto; (3) to file, prosecute, defend, settle, or compromise any and all actions at law or suits in equity for or on behalf of each Partnership in connection with any claim, demand, or liability asserted or threatened by or against any Partnership; and (4) to execute, acknowledge, swear to, deliver, file, and record on your behalf and as necessary in the appropriate public offices, and publish: (a) each Limited Partnership Agreement and each Certificate of Limited Partnership and all amendments thereto permitted by the terms thereof; (b) all instruments that the General Partner deems necessary or appropriate to reflect any amendment, change, or modification of any Limited Partnership Agreement or any Certificate of Limited Partnership made in accordance with the terms of such Limited Partnership Agreement; (c) certificates of assumed name; and (d) all instruments that the General Partner deems necessary or appropriate to qualify or maintain the qualification of each Partnership to do business as a foreign limited partnership in other jurisdictions. You agree to be bound by any representation made by the General Partner or any successor thereto acting in good faith pursuant to this Power of Attorney. The Power of Attorney granted hereby shall be deemed to be coupled with an interest and shall be irrevocable and survive your death, incapacity, dissolution, liquidation, or termination. THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT BE DEEMED A WAIVER OF ANY RIGHTS OF ACTION YOU MAY HAVE UNDER APPLICABLE FEDERAL OR STATE SECURITIES LAW. - -------------------------------------------------------------------------------- RECEIPT OF DOCUMENTATION - -------------------------------------------------------------------------------- The regulations of the CFTC require that you be given a copy of each Prospectus (which include the most current annual report for each Partnership, other than Spectrum Currency), as well as certain additional documentation consisting of: (a) a supplement to the Prospectus, which must be given to you if the Prospectus is dated more than nine months prior to the date that you first received the Prospectus, and (b) the most current monthly account statement (report) for the Partnerships. You hereby acknowledge receipt of each Prospectus and the additional documentation referred to above, if any. B-5 (This page has been left blank intentionally.) B-6 - --- MORGAN STANLEY DEAN WITTER SPECTRUM SERIES UNITS OF LIMITED PARTNERSHIP INTEREST CASH SUBSCRIPTION SIGNATURE PAGE A PLEASE PRINT OR TYPE (EXCEPT SIGNATURES). USE BLACK INK ONLY. PAGES B-7 AND B-8, THE CASH SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MSDW BRANCH OFFICE AND MUST BE RECEIVED BY THE GENERAL PARTNER AT TWO WORLD TRADE CENTER, 62ND FLOOR, NEW YORK, NEW YORK 10048-0026, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. By execution and delivery of this Cash Subscription Signature Page and by payment of the purchase price for Units of Limited Partnership Interest ("Units") of one or more Partnerships in the Morgan Stanley Dean Witter Spectrum Series (the "Partnerships"), you hereby subscribe for Units in the Partnership(s) specified below at a price equal to 100% of the Net Asset Value per Unit of the applicable Partnership(s) as of the close of business on the date of the applicable Monthly Closing. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY DEAN WITTER SPECTRUM SERIES PROSPECTUS DATED - , 2001, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. CASH SUBSCRIPTION SIGNATURE PAGE BUY - ---------------------------------------------------------------------------------------------------------------------- ITEM 1 -- SUBSCRIBER (YOU MUST SIGN THE TAX REPRESENTATION BELOW) - ---------------------------------------------------------------------------------------------------------------------- SPECTRUM FUND SYMBOL AMOUNT OF SUBSCRIPTION / // // /-/ // // // // // / MORGAN STANLEY DEAN WITTER SPECTRUM DWR ACCOUNT NO. D W S F SELECT L.P. $ MORGAN STANLEY DEAN WITTER SPECTRUM D W S T TECHNICAL L.P. $ / // // /-/ // /-/ // // // / MORGAN STANLEY DEAN WITTER SPECTRUM D W S S STRATEGIC L.P. $ SOCIAL SECURITY NUMBER MORGAN STANLEY DEAN WITTER SPECTRUM OR D W S B GLOBAL BALANCED L.P. $ / // /-/ // // // // // // / MORGAN STANLEY DEAN WITTER SPECTRUM TAXPAYER ID NUMBER D W S X CURRENCY L.P. $ MORGAN STANLEY DEAN WITTER SPECTRUM D W S C COMMODITY L.P. $
CHECK THE BOX BELOW WHICH DESCRIBES THE CAPACITY IN WHICH YOU ARE INVESTING: / / Individual Ownership / / Trust other than Grantor or / / IRA (the MSDW Branch Manager must / / Joint Tenants with Rights of Revocable Trust sign below for IRA accounts) Survivorship / / Estate / / Employee Benefit Plan (Participant- / / Tenants in Common / / UGMA/UTMA (Minor) Directed) / / Community Property / / Partnership / / Defined Benefit Plan (Other) / / Grantor or other Revocable Trust / / Corporation / / Other (specify) ------------------
YOU (OR BRANCH MANAGER IN THE CASE OF AN IRA) MUST SIGN BELOW:
UNITED STATES TAXABLE INVESTORS ONLY: NON-UNITED STATES INVESTORS ONLY: - ------------------------------------- --------------------------------- / / Check box if you are subject to backup withholding under the Under penalties of perjury, by signature provisions of Section 3406(a)(1)(C) of the Internal Revenue Code. OR below, you certify that you are NOT If your taxable year is other than the calendar year, indicate the date on (a) a citizen or resident of the United which your taxable year ends: / // /-/ // / MM-DD States; or Under penalties of perjury, by signing below, I certify that the Social (b) a United States corporation, Security Number (or Taxpayer ID Number) above to be the true, correct and partnership, estate or trust. complete Social Security Number (or Taxpayer ID Number) and that all the information above is true, correct and complete.
X _______________________________ __________________________ (Your Signature (Indicate your title, if applicable) [or Date Branch Manager in the case of IRAs]) If you are an Entity: Name of Entity: ................................... Name of Person Signing for Entity: .......................... Title: ...................................................... Full Name of Account .......................................................... (Your Name or Name of Trust or Custodial Account--do not use initials) You are a resident of .................... and a citizen of .................... (name of country) (name of country)
Street Address ................................................................ (MUST be residence address--P.O. Box alone not acceptable) City ......... State ......... Zip Code ......... Tel. No. ( ........ ) ........ / / Check here if you are a non-resident alien individual, foreign corporation, foreign partnership, foreign trust or foreign estate that is a dealer in commodities or otherwise engaged in a trade or business within the U.S.A. to which income, gain or loss from a Partnership would be treated as effectively connected. (You must complete Form W-8, which may be obtained from an MSDW Financial Advisor.) B-7 ---- - - ---- COMPLETE, IF APPLICABLE (MUST BE COMPLETED IF THERE IS A CO-SUBSCRIBER, TRUSTEE OR CUSTODIAN): Name .................. Telephone Number ( ................. ) ................. The person or entity above is a/an: (check one) / / Co-Subscriber / / Trustee or Custodian / / Authorized Person, if an Institutional Trustee Street Address (P.O. Box alone not acceptable) ................................. City ................................................... State .................... Zip Code ................... Co-Subscriber, Trustee or Custodian is a resident of ... and a citizen of ....................................... Minor (if not a gift) is a resident of ................. and a citizen of .......................................
- -------------------------------------------------------------------------------- ITEM 2 -- SIGNATURE(S) -- YOU MUST SIGN UNDER TAX REPRESENTATION ON PRECEDING PAGE AND BELOW - -------------------------------------------------------------------------------- (INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION) If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. * If the Units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. * In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." X ________________________________ _____________ X ________________________________ _____________ (Signature of Subscriber) Date (Signature of Co-Subscriber) Date
(ENTITY SUBSCRIPTION) ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAS) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR DWR THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to complete, execute, and deliver this Subscription and Exchange Agreement and Power of Attorney on their behalf and to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each Partnership specified is authorized under applicable law and the governing documents of the entity, has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. .......................................................... X ....................................... ............ (Name of Entity) (Signature) Date Print Name ................................................ Title ..................................................
- -------------------------------------------------------------------------------- ITEM 3 -- BRANCH MANAGER AND FINANCIAL ADVISOR USE ONLY (COMPLETE IN FULL AND IN INK) - -------------------------------------------------------------------------------- THE UNDERSIGNED FINANCIAL ADVISOR HEREBY CERTIFIES THAT: (1) the above signature(s) is/are true and correct; (2) s/he has informed the Subscriber about the liquidity and marketability of the Units as set forth in the Prospectus. (3) based on information obtained from the Subscriber concerning the Subscriber's investment objectives, other investments, financial situation, needs and any other relevant information, that s/he reasonably believes that: (a) such Subscriber is or will be in a financial position appropriate to enable such Subscriber to realize the benefits of each Partnership specified, as described in the Prospectus; (b) such Subscriber has a net worth sufficient to sustain the risk inherent in each Partnership specified (including loss of investment and lack of liquidity); and (c) each Partnership specified is otherwise a suitable investment for such Subscriber; and (4) the Subscriber received the Prospectus at least five business days prior to the applicable Closing. THE FINANCIAL ADVISOR MUST SIGN BELOW IN ORDER TO SUBSTANTIATE COMPLIANCE WITH NASD CONDUCT RULE 2810. X ______________________________________________________________________________ Financial Advisor's Signature ............................................................................... Type or Print Full Name of Financial Advisor Telephone Number ( ............................. ) ............................ THE UNDERSIGNED BRANCH MANAGER HEREBY CERTIFIES THAT: (1) the above signature(s) is/are true and correct. (2) the above client(s) is/are suitable. X _____________________________________________________________________________, Branch Manager's Signature ............................................................................... Type or Print Full Name of Branch Manager B-8 ---- - - --- MORGAN STANLEY DEAN WITTER SPECTRUM SERIES EXCHANGE SUBSCRIPTION SIGNATURE PAGE B PLEASE PRINT OR TYPE (EXCEPT SIGNATURES). USE BLACK INK ONLY. PAGES B-9 AND B-10, THE EXCHANGE SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MSDW BRANCH OFFICE AND MUST BE RECEIVED BY THE GENERAL PARTNER AT TWO WORLD TRADE CENTER, 62ND FLOOR, NEW YORK, NEW YORK 10048-0026, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. By execution and delivery of this Signature Page, you hereby redeem the units of limited partnership interest of the limited partnership(s) named in Item 1 below and, by application of the proceeds of such redemption to the payment of the purchase price for Units of Limited Partnership Interest ("Units") in one or more Partnerships in the Morgan Stanley Dean Witter Spectrum Series (the "Partnerships"), you hereby subscribe for Units in the Partnership(s) specified below at a price equal to 100% of the Net Asset Value per Unit of the applicable Partnership(s) as of the close of business on the date of the applicable Monthly Closing. Redemption of units of any partnership for an exchange must be in whole units, unless you are redeeming your entire interest in such partnership. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY DEAN WITTER SPECTRUM SERIES PROSPECTUS, DATED - , 2001, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. - -------------------------------------------------------------------------------------------------------------------------- ITEM 1 -- SUBSCRIBER (YOU MUST SIGN THE TAX REPRESENTATION BELOW ) - -------------------------------------------------------------------------------------------------------------------------- DWR ACCOUNT NO. / // // /-/ // // // // // / / // // /-/ // /-/ // // // / or / // /-/ // // // // // // / SOCIAL SECURITY NUMBER TAXPAYER ID NUMBER SYMBOL(S) FOR FUND(S) FROM SPECIFY QUANTITY OF UNITS TO BE REDEEMED SPECTRUM SERIES WHICH UNITS TO BE REDEEMED (CHECK BOX IF ENTIRE INTEREST; INSERT NUMBER IF WHOLE UNITS) FUND SYMBOL / // // // // / / / Entire Interest OR Whole Units TO / // // // // / / // // // // / / / Entire Interest OR Whole Units TO / // // // // / / // // // // / / / Entire Interest OR Whole Units TO / // // // // / / // // // // / / / Entire Interest OR Whole Units TO / // // // // / / // // // // / / / Entire Interest OR Whole Units TO / // // // // / / // // // // / / / Entire Interest OR Whole Units TO / // // // // / You hereby authorize Demeter Management Corporation to redeem the quantity of units of limited partnership interest set forth opposite the symbol for each partnership identified on the left above at the "Net Asset Value" thereof, as defined in the limited partnership agreement of each such partnership, less any redemption charges, and to utilize the net proceeds of that redemption to purchase Units in the applicable Spectrum Series Partnership as indicated on the right above. Redemptions for an exchange may only be made in whole units of limited partnership interest, with a minimum redemption of the lesser of (i) 5 units (2 units in the case of an IRA) from any partnership other than the Spectrum Series Partnerships or any Morgan Stanley Dean Witter Charter Series partnership (each, a "Charter Partnership"); (ii) 50 Units from any Spectrum Series Partnership; (iii) 500 units (200 units in the case of an IRA) from a Charter Partnership; or (iv) the Subscriber's entire interest in any partnership.
CHECK THE BOX BELOW WHICH DESCRIBES THE CAPACITY IN WHICH YOU ARE INVESTING: / / Individual Ownership / / Trust other than Grantor or / / IRA (the MSDW Branch Manager must sign / / Joint Tenants with Rights of Revocable Trust below for IRA accounts) Survivorship / / Estate / / Employee Benefit Plan (Participant- / / Tenants in Common / / UGMA/UTMA (Minor) Directed) / / Community Property / / Partnership / / Defined Benefit Plan (Other) / / Grantor or other Revocable Trust / / Corporation / / Other (specify) YOU (OR BRANCH MANAGER IN THE CASE OF AN IRA) MUST SIGN BELOW:
UNITED STATES TAXABLE INVESTORS ONLY: NON-UNITED STATES INVESTORS ONLY: - ------------------------------------- --------------------------------- / / Check box if you are subject to backup withholding under the provisions of OR Under penalties of perjury, by Section 3406(a)(1)(C) of the Internal Revenue Code. signature below, you certify that you are NOT If your taxable year is other than the calendar year, indicate the date (a) a citizen or resident of the on which your taxable year ends: / // /-/ // / MM-DD United States; or Under penalties of perjury, by signing below, I certify that the Social Security Number (b) a United States corporation, (or Taxpayer ID Number) above to be the true, correct and complete Social Security partnership, estate or trust. Number (or Taxpayer ID Number) and that all the information above is true, correct and complete.
X _______________________________ __________________________ (Your Signature (Indicate your title, if applicable) Date [or Branch Manager in the case of IRAs]) If you are an Entity: Name of Entity: ................................... Name of Person Signing for Entity: .......................... Title: ...................................................... EXCHANGE SUBSCRIPTION SIGNATURE PAGE EXG B-9 ---- - - ---- Full Name of Account .......................................................... (Your Name or Name of Trust or Custodial Account--do not use initials) You are a resident of .................... and a citizen of .................... (name of country) (name of country) Street Address (P.O. Box alone not acceptable) ................................ City ......... State ......... Zip Code ........ Tel. No. ( ........ ) ........ / / Check here if you are a non-resident alien individual, foreign corporation, foreign partnership, foreign trust or foreign estate that is a dealer in commodities or otherwise engaged in a trade or business within the U.S.A. to which income, gain or loss from a Partnership would be treated as effectively connected. (You must complete Form W-8, which may be obtained from an MSDW Financial Advisor.) COMPLETE, IF APPLICABLE (MUST BE COMPLETED IF THERE IS A CO-SUBSCRIBER, TRUSTEE OR CUSTODIAN): Name.......................Telephone Number ( ............. )................... The person or entity above is a/an: (check one) / / Co-Subscriber / / Trustee or Custodian / / Authorized Person, if an Institutional Trustee Street Address (P.O. Box alone not acceptable) ................................. City ...................................................... State ..................... Zip Code ..................... Co-Subscriber, Trustee or Custodian is a resident of ...... and a citizen of .......................................... Minor (if not a gift) is a resident of .................... and a citizen of ..........................................
- -------------------------------------------------------------------------------- ITEM 2 -- SIGNATURE(S) -- YOU MUST SIGN UNDER TAX REPRESENTATION ON PRECEDING PAGE AND BELOW - -------------------------------------------------------------------------------- (INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION) If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. * If the Units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. * In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." X _________________________________ ______________ X _________________________________ ______________ (Signature of Subscriber) Date (Signature of Co-Subscriber) Date
(ENTITY SUBSCRIPTION) ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAS) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR DWR THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager, or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to (i) complete, execute, and deliver this Subscription Agreement and Power of Attorney on their behalf; and (ii) to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each Partnership specified is authorized under applicable law and the governing documents of the entity, and has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. .......................................................... X ....................................... ............ (Type or Print Name of Entity) (Signature) Date Name of Person Signing for Entity ......................... Title .................................................
- -------------------------------------------------------------------------------- ITEM 3 -- FINANCIAL ADVISOR AND BRANCH MANAGER USE ONLY (COMPLETE IN FULL AND IN INK) - -------------------------------------------------------------------------------- THE UNDERSIGNED FINANCIAL ADVISOR HEREBY CERTIFIES THAT: (1) the above signature(s) is/are true and correct. (2) s/he has informed the Subscriber about the liquidity and marketability of the Units as set forth in the Prospectus. (3) based on information obtained from the Subscriber concerning the Subscriber's investment objectives, other investments, financial situation, needs and any other relevant information, that s/he reasonably believes that: (a) such Subscriber is or will be in a financial position appropriate to enable such Subscriber to realize the benefits of each Partnership specified, as described in the Prospectus; (b) such Subscriber has a net worth sufficient to sustain the risk inherent in each Partnership specified (including loss of investment and lack of liquidity); and (c) each Partnership specified is otherwise a suitable investment for such Subscriber; and (4) the Subscriber received the Prospectus at least five business days prior to the applicable Closing. THE FINANCIAL ADVISOR MUST SIGN BELOW IN ORDER TO SUBSTANTIATE COMPLIANCE WITH NASD CONDUCT RULE 2810. X ______________________________________________________________________________ Financial Advisor's Signature ............................................................................... Type or Print Full Name of Financial Advisor Telephone Number ( ............................. ) ............................ THE UNDERSIGNED BRANCH MANAGER HEREBY CERTIFIES THAT: (1) the above signature(s) is/are the true and correct. (2) the above client(s) is/are suitable. X ______________________________________________________________________________ Branch Manager's Signature ............................................................................... Type or Print Full Name of Branch Manager B-10 ---- - EXHIBIT C MORGAN STANLEY DEAN WITTER SPECTRUM SERIES SUBSCRIPTION AGREEMENT UPDATE FORM PLEASE PRINT OR TYPE (EXCEPT SIGNATURES). USE BLACK INK ONLY. DWR Account No. / / / / / / - / / / / / / / / / / / / I am an investor in the following Morgan Stanley Dean Witter Spectrum Series Partnership(s) (mark each applicable box with an "X"): / / Morgan Stanley Dean Witter Spectrum Select L.P. / / Morgan Stanley Dean Witter Spectrum Technical L.P. / / Morgan Stanley Dean Witter Spectrum Strategic L.P. / / Morgan Stanley Dean Witter Spectrum Global Balanced L.P. / / Morgan Stanley Dean Witter Spectrum Currency L.P. / / Morgan Stanley Dean Witter Spectrum Commodity L.P. I acknowledge receipt of the Morgan Stanley Dean Witter Spectrum Series Prospectus dated - , 2001 (the "Prospectus"). I have signed this form, which updates each Subscription and Exchange Agreement and Power of Attorney (each, a "Subscription Agreement") I signed when I bought Units of the Morgan Stanley Dean Witter Spectrum Series Partnership(s) checked above, so that I may purchase additional Units of such Partnership(s) without the need to execute a new Subscription Agreement. I understand that if I wish to purchase additional Units by way of an Exchange, or if I wish to purchase Units of any Morgan Stanley Dean Witter Spectrum Series Partnership in which I am not currently an investor, I must first execute a new Subscription Agreement in the form annexed to the applicable Prospectus as Exhibit B. I hereby confirm that the representations, warranties and other information regarding the Subscriber in the Subscription Agreement(s) I previously executed are still accurate, and that any purchase of additional Units following the date of this Subscription Agreement Update Form shall be deemed confirmation that such representations, warranties and other information are still accurate at the time of that additional purchase. I will notify my Morgan Stanley Dean Witter Financial Advisor prior to the purchase of additional Units if there is any material change in the Subscriber's representations, warranties, or other information contained in the previously executed Subscription Agreement(s). I understand that I will need to execute a new Subscription Agreement Update Form when a new Prospectus or Prospectus Supplement is issued. IF SUBSCRIBER IS AN ENTITY INDIVIDUAL SUBSCRIBERS - ----------------------------------------------------- ----------------------------------------------------- Name of Entity (Print or Type) Name of Subscriber(s) (Print or Type) By: ---------------------------------------------- ----------------------------------------------------- Name of Signatory - ----------------------------------------------------- ----------------------------------------------------- Title Signature(s) of Subscriber(s) - ----------------------------------------------------- ----------------------------------------------------- Signature Address - ----------------------------------------------------- ----------------------------------------------------- Address City State Zip - ----------------------------------------------------- City State Zip Date: ---------------------------------------------- Date: ----------------------------------------------
(PLEASE RETURN THIS FORM TO YOUR MORGAN STANLEY DEAN WITTER FINANCIAL ADVISOR. FINANCIAL ADVISORS MUST FORWARD THE EXECUTED COPY OF THIS FORM TO DEMETER MANAGEMENT CORPORATION.) C-1 NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY PERSON WITHIN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ITS ISSUE. UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution.
$ -------- SEC registration fee........................................ 0 NASD filing fee............................................. 0 Printing and engraving...................................... 58,333 Legal fees and expenses, excluding Blue Sky legal fees...... 20,000 Accounting fees and expenses................................ 13,333 Annual Escrow Agent fees.................................... 167 Blue Sky fees and expenses, including Blue Sky legal fees... 500 Miscellaneous............................................... 5,000 ------- Total................................................... 97,333* =======
- --------- * Represents an estimate of the registrant's portion of the fees and expenses that are common to this Registration Statement, Post-Effective Amendment No 7 to the Registration Statement on Form S-1 for Morgan Stanley Dean Witter Spectrum Technical L.P. (Registration Statement No. 333-68779), and Post-Effective Amendments No. 2 to the Registration Statements on Form S-1 for each of Morgan Stanley Dean Witter Spectrum Strategic L.P., (Registration Statement No. 333-90487) Morgan Stanley Dean Witter Spectrum Global Balanced L.P. (Registration Statement No. 333-90475), Morgan Stanley Dean Witter Spectrum Currency L.P. (Registration Statement No. 333-90485), and Morgan Stanley Dean Witter Spectrum Commodity (Registration Statement No. 333-90483), which are being filed concurrently with this Registration Statement. Item 14. Indemnification of Directors and Officers. Section 14 of the Amended and Restated Limited Partnership Agreement (a form of which is annexed to the Prospectus as Exhibit A) provides for indemnification of the General Partner and its affiliates (as such term is defined therein) by the Partnership for any loss, liability, damage, cost or expense arising from any act, omission, activity or conduct undertaken by or on behalf of the Partnership that is determined by the General Partner in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 11 of the Amended and Restated Selling Agreement provides for indemnification of the General Partner and its affiliates and its successors and assigns by Dean Witter Reynolds Inc. ("DWR") for any loss, claim, damage, liability, cost and expense incurred for a breach by DWR of a representation or agreement in the Selling Agreement, or for misleading statements and material omissions regarding DWR in the Registration Statement or Prospectus. Such Section also provides for the indemnification by the Partnership of DWR, the General Partner and their affiliates for any act, omission, conduct, or activity undertaken by or on behalf of a Partnership that is determined by DWR or the General Partner, as applicable, in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 8 of the DWR Customer Agreement provides for indemnification of DWR and its affiliates for liabilities, losses, damages, costs, or expenses for activities taken by or on behalf of the Partnership which DWR has determined in good faith are in the best interests of the Partnership and are not the result of misconduct or negligence. Section 8 of each Management Agreement provides for indemnification of the General Partner and its affiliates by the Trading Advisor for losses, claims, damages, liabilities, costs and expenses incurred as a result of actions or omissions by the Trading Advisor involving the Partnership's trading which are the result of a breach of agreement, representation or warranty or the result of bad faith, misconduct or negligence. Item 15. Recent Sales of Unregistered Securities. None. II-1 Item 16. Exhibits and Financial Statements. (a) Exhibits
Exhibit Number Description of Document - ------- ----------------------- 1.01(4) Form of Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Dean Witter Spectrum Technical L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Currency L.P., Morgan Stanley Dean Witter Spectrum Commodity L.P., Demeter Management Corporation, and Dean Witter Reynolds Inc. 1.02(4) Form of Additional Seller Agreement between Dean Witter Reynolds Inc. and additional selling agents. 3.01 Form of Amended and Restated Limited Partnership Agreement of the Registrant (included as Exhibit A to the prospectus). 3.02(1) Certificate of Limited Partnership of the Registrant. 3.03(2) Certificate of Amendment of Certificate of Limited Partnership of the Registrant (changing its name from Dean Witter Spectrum Select L.P.). 5.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.02(2) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.03(4) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 8.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.02(2) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.03(4) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 10.01(3) Amended and Restated Management Agreement, dated as of June 1, 1998, among the Registrant, Demeter Management Corporation, and Rabar Market Research, Inc. 10.02(3) Amended and Restated Management Agreement, dated as of June 1, 1998, among the Registrant, Demeter Management Corporation, and EMC Capital Management, Inc. 10.03(3) Amended and Restated Management Agreement, dated as of June 1, 1998, among the Registrant, Demeter Management Corporation, and Sunrise Capital Management, Inc. 10.07 Form of Subscription and Exchange Agreement and Power of Attorney to be executed by each purchaser of units (included as Exhibit B to the prospectus). 10.10(4) Form of Amended and Restated Escrow Agreement among the Registrant, Morgan Stanley Dean Witter Spectrum Technical L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Currency L.P., Morgan Stanley Dean Witter Spectrum Commodity L.P., Demeter Management Corporation, Dean Witter Reynolds Inc., and Chemical Bank, the escrow agent. 10.11 Form of Subscription Agreement Update Form to be executed by purchasers of units (included as Exhibit C to the prospectus). 10.12 Amended and Restated Customer Agreement between the Registrant and Dean Witter Reynolds Inc. 10.13 Customer Agreement among the Registrant, Morgan Stanley & Co. Incorporated, and Dean Witter Reynolds Inc. 10.14 Form of Customer Agreement among the Registrant, Morgan Stantley & Co. International Limited, and Morgan Stanley & Co. Incorporated. 10.15 Foreign Exchange and Options Master Agreement between the Registrant and Morgan Stanley & Co. Incorporated. 10.16 Form of Management Agreement, dated as of June 1, 2001, among the Registrant, Demeter Management Corporation, and Northfield Trading L.P. 23.01 Consent of Independent Auditors.
- --------- (1) Incorporated by reference to Registration Statement No. 333-47829. (2) Incorporated by reference to Registration Statement No. 333-68773. (3) Incorporated by reference to the exhibits filed with the Registrant's Form 10-K for fiscal year ended December 31, 1998 (File No. 0-19511). (4) Incorporated by reference to Registration Statement No. 333-90467. II-2 (b) Financial Statements. Included in the Prospectus: Morgan Stanley Dean Witter Spectrum Select L.P. Independent Auditors' Report Statements of Financial Condition Statements of Operations Statements of Changes in Partners' Capital Statements of Cash Flows Notes to Financial Statements Demeter Management Corporation Independent Auditors' Report Statements of Financial Condition Notes to Statements of Financial Condition Item 17. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (c) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Post-Effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 14th day of March, 2001. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. By: DEMETER MANAGEMENT CORPORATION General Partner By: /s/ ROBERT E. MURRAY -------------------------------------------- Robert E. Murray, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- DEMETER MANAGEMENT CORPORATION General Partner /s/ ROBERT E. MURRAY Chairman of the Board, ------------------------------------- President, and Director of Robert E. Murray the General Partner March 14, 2001 ------------------------------------- Director of the General Partner Mitchell M. Merin /s/ JOSEPH G. SINISCALCHI ------------------------------------- Director of the General Partner Joseph G. Siniscalchi March 14, 2001 /s/ EDWARD C. OELSNER, III ------------------------------------- Director of the General Partner Edward C. Oelsner, III March 14, 2001 ------------------------------------- Director of the General Partner Richard A. Beech /s/ RAYMOND A. HARRIS ------------------------------------- Director of the General Partner Raymond A. Harris March 14, 2001 ------------------------------------- Director of the General Partner Anthony J. DeLuca /s/ RAYMOND KOCH Chief Financial and Principal ------------------------------------- Accounting Officer of the Raymond Koch General Partner March 14, 2001
II-4 EX-10.12 2 a2041380zex-10_12.txt EXHIBIT 10.12 Exhibit 10.12 AMENDED AND RESTATED CUSTOMER AGREEMENT THIS CUSTOMER AGREEMENT (this "Agreement"), made as of the 16th day of October, 2000, by and between MORGAN STANLEY DEAN WITTER SPECTRUM SELECT 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 March 21, 1991, as amended, and a Limited Partnership Agreement dated as of March 21, 1991, as amended, and as further amended and restated as of February 28, 2000, 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 ("Limited Partners"), 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 the 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 June 1, 1998 (the "Customer Agreement"), whereby DWR agreed to perform non-clearing 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 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 Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan Stanley & Co. International Limited ("MSIL") for execution and clearing of futures interests transactions on behalf of the Customer in accordance with instructions provided by the Trading Advisor, and the Customer agrees to retain DWR as a non-clearing commodity broker for the term of this Agreement. DWR agrees to furnish to the Customer as soon as practicable all of the information from time to time in its possession which Demeter, as the general partner of the Customer, is required to furnish to the Limited Partners pursuant to the Limited Partnership Agreement as from time to time in effect and as required by applicable law, rules, or regulations and to perform such other services for the Customer as are set forth herein and in the Prospectus. 3. OBLIGATIONS AND EXPENSES. 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 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 MS&Co. and MSIL 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 or reimburse the Customer, from brokerage fees received by it, all charges of MS&Co. and MSIL 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 MS&Co. and MSIL, and costs associated with taking delivery of futures interests. For purposes of clarity, DWR does not pay or reimburse the Customer for the mark-up, spread, or other profit of MS&Co. included as a part of the transaction price on each foreign currency forward contract trade executed with -2- MS&Co. pursuant to the Foreign Exchange and Options Master Agreement between MS&Co. and the Customer. 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 at that rate. 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 the Customer on or with respect to forward contracts and other futures interests but not actually received it from banks, brokers, dealers and other persons. The Customer understands that it will not receive any other interest income on its assets and that DWR will receive interest income from MS&Co. and MSIL, as agreed from time to time with MS&Co. and MSIL, on the Customer's assets deposited as margin with MS&Co. and MSIL. 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 -3- which DWR determines, in good faith, to be in the best interests of the Customer, unless such act, omission, conduct, or activity by DWR or its affiliates constituted misconduct or negligence. The Customer shall indemnify, defend and hold harmless DWR and its affiliates from and against any loss, liability, damage, cost or expense (including attorneys' and accountants' fees and expenses incurred in the defense of any demands, claims, or lawsuits) actually and reasonably incurred arising from any act, omission, conduct or activity undertaken by DWR on behalf of the Customer pursuant to this Agreement, including, without limitation, any demands, claims or lawsuits initiated by a Limited Partner (or assignee thereof), PROVIDED that (i) DWR has determined, in good faith, that the act, omission, conduct, or activity giving rise to the claim for indemnification was in the best interests of the Customer, and (ii) the act, omission, conduct, or activity that was the basis for such loss, liability, damage, cost, or expense was not the result of misconduct or negligence. Notwithstanding anything to the contrary contained in the foregoing, neither DWR nor any of its affiliates shall be indemnified by the Customer for any losses, liabilities, or expenses arising from or out of an alleged violation of federal or state securities laws unless (a) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (c) a court of competent jurisdiction approves a settlement of the claims against the particular indemnitee and finds that indemnification of the settlement and related costs should be made, PROVIDED, with regard to such court approval, the indemnitee must apprise the court of the position of the SEC, and the positions of the respective securities administrators of Massachusetts, Missouri, Tennessee and/or those other states and jurisdictions in which the plaintiffs claim they were offered or sold Units, with respect to indemnification for securities laws violations before seeking court approval for indemnification. Furthermore, in any action or proceeding brought by a Limited Partner in the right of the Customer to which DWR or any affiliate thereof is a party defendant, any such person shall be indemnified only to the extent and subject to the conditions specified in the Delaware Revised Uniform Limited Partnership Act, as amended, and this Section 8. The Customer shall make advances to DWR or its affiliates hereunder only if: (i) the demand, claim, lawsuit, or legal action relates to the performance of duties or services by such persons to the Customer; (ii) such demand, claim, lawsuit, or legal action is not initiated by a Limited Partner; and (iii) such advances are repaid, with interest at the legal rate under Delaware law, if the person receiving such advance is ultimately found not to be entitled to indemnification hereunder. DWR shall indemnify, defend and hold harmless the Customer and its successors or assigns from and against any losses, liabilities, damages, costs, or expenses (including in connection with the defense or settlement of claims; PROVIDED DWR has approved such settlement) incurred as a result of the activities of DWR or its affiliates, PROVIDED, FURTHER, that the act, omission, conduct, or activity giving rise to the claim for indemnification was the result of bad faith, misconduct or negligence. The indemnities provided in this Section 8 by the Customer to DWR and its affiliates shall be inapplicable in the event of any losses, liabilities, damages, costs, or expenses arising out of, or based upon, any material breach of any warranty, covenant, or agreement of DWR contained in this Agreement to the extent caused by such breach. Likewise, the indemnities provided in this Section 8 by DWR to the Customer and any of its successors and assigns shall be inapplicable in the event of any losses, liabilities, damages, costs, or expenses -4- 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 and performing services for Customer 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: MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. c/o Demeter Management Corporation Two World Trade Center, 62nd Floor New York, New York 10048 Attn: Robert E. Murray President and Chairman -5- if to DWR: DEAN WITTER REYNOLDS INC. Two World Trade Center, 62nd Floor New York, New York 10048 Attn: Robert E. Murray Senior Vice President 14. SURVIVAL. The provisions of this Agreement shall survive the termination of this Agreement with respect to any matter arising while this Agreement was in effect. 15. HEADINGS. Headings of Sections herein are for the convenience of the parties only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 16. INCORPORATION BY REFERENCE. The Futures Customer Agreement annexed hereto is hereby incorporated by reference herein and made a part hereof to the same extent as if such document were set forth in full herein. If any provision of this Agreement is or at any time becomes inconsistent with the annexed document, the terms of this Agreement shall control. IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of the undersigned as of the day and year first above written. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. By: Demeter Management Corporation, General Partner By: /s/ ROBERT E. MURRAY ------------------------- Robert E. Murray President and Chairman DEAN WITTER REYNOLDS INC. By: /s/ ROBERT E. MURRAY --------------------------- Robert E. Murray Senior Vice President -6- 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; -2- (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 -3- 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 -4- 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 -5- 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 -6- 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 -7- 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 -3- 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. -9- 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. -10- 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/ Robert E. Murray ------------------------------------ AUTHORIZATION TO TRANSFER FUNDS: (Agreement Paragraph 26) X /s/ Robert E. Murray ------------------------------------ ACKNOWLEDGEMENT TO SUBORDINATION AGREEMENT (Agreement Paragraph 27) X /s/ Robert E. Murray ------------------------------------ (Required for accounts holding non-U.S. currency) - -------------------------------------------------------------------------------- HEDGE ELECTION Customer confirms that all transactions in the Account will represent bona fide hedging transactions, as defined by the Commodity Futures Trading Commission, unless DWR is notified otherwise not later than the time an order is placed for the Account [CHECK BOX IF APPLICABLE]: /_/ Pursuant to CFTC Regulation 190.06(d), Customer specifies and agrees, with respect to hedging transactions in the Account, that in the unlikely event of DWR's bankruptcy, it prefers that the bankruptcy trustee [CHECK APPROPRIATE BOX]: A. Liquidate all open contracts without first seeking instructions either from or on behalf of Customer. /_/ B. Attempt to obtain instructions with respect to the disposition of all open contracts. (IF NEITHER BOX IS CHECKED, CUSTOMER SHALL BE DEEMED TO ELECT A) /_/ - -------------------------------------------------------------------------------- ACKNOWLEDGEMENT OF RECEIPT OF RISK DISCLOSURE STATEMENTS The undersigned each hereby acknowledges its separate receipt from DWR, and its understanding of each of the following documents prior to the opening of the account: o Risk Disclosure Statement for o Project ATM Customer Information Futures and Options (in the 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 o CME Average Pricing System After Hours ElectronicMarkets Disclosure Statement o NYMEX ACCESSSM Risk Disclosure o Special Notice to Foreign Statement Brokers and Foreign Traders o Globex(R)Customer Information and Risk Disclosure Statement - ------------------------------------------------------------------------------- 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. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. - ------------------------------------------------------------------------------- CUSTOMER NAME(S) By: DEMETER MANAGEMENT CORPORATION By: /s/ Robert E. Murray October 16, 2000 - ----------------------------------- ---------------------------------- AUTHORIZED SIGNATURE(S) DATE Robert E. Murray, President and Chairman - ------------------------------------------------------------------------------- (IF APPLICABLE, PRINT NAME AND TITLE OF SIGNATORY) EX-10.13 3 a2041380zex-10_13.txt EXHIBIT 10.13 Exhibit 10.13 COMMODITY FUTURES CUSTOMER AGREEMENT BETWEEN MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. AND MORGAN STANLEY & CO. INCORPORATED This Commodity Futures Customer Agreement ("Agreement"), dated as of June 6, 2000 between Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Morgan Stanley Dean Witter Spectrum Select L.P. ("Customer"), and acknowledged and agreed to Dean Witter Reynolds Inc., the non-clearing commodity broker for the Customer ("DWR"), shall govern the purchase and sale by Morgan Stanley of commodity futures contracts and options thereon (collectively, "Contracts") for the account and risk of Customer through one or more accounts carried by Morgan Stanley on behalf and in the name of Customer (collectively, the "Account"). 1. APPLICABLE LAW. The Account and all transactions and agreements in respect of the Account shall be subject to all applicable Federal, state, exchange, clearing house and self-regulatory agency rules, regulations and interpretations and custom and usage of the trade. All such rules, regulations, interpretations, custom and usage are hereinafter collectively referred to as "Applicable Law." 2. CUSTOMER'S REPRESENTATIONS AND WARRANTIES. Customer represents and warrants that (a) Customer has full right, power and authority to enter into this Agreement, and the person executing this Agreement on behalf of Customer is authorized to do so; (b) this Agreement is binding on Customer and enforceable against Customer in accordance with its terms; (c) Customer may lawfully establish and open the Account for the purpose of effecting purchases and sales of Contracts through Morgan Stanley; (d) transactions entered into pursuant to this Agreement will not violate any applicable law (including any Applicable Law) to which Customer is subject or any agreement to which Customer is subject or a party; and (e) all information provided by Customer in the Account Application preceding this Agreement (which Application and the information contained therein hereby is incorporated into this Agreement) is true and correct and Customer shall immediately (and in no event later than within one business day) notify Morgan Stanley of any change in such information. 3. PAYMENT AND INTEREST OBLIGATIONS. (a) COMPENSATION PAYMENTS TO MORGAN STANLEY. Customer shall pay Morgan Stanley upon demand (a) all floor brokerage charges, give-up fees, contract market, clearing house, National Futures Association ("NFA") or clearing member fees or charges; (b) any tax imposed on such transactions by any competent taxing authority; (c) the amount of any trading losses in the Account; (d) any debit balance or deficiency in the Account; and (e) any other amounts owed by Customer to Morgan Stanley with respect to the Account or any transactions therein. DWR shall pay Morgan Stanley such charges with respect to the execution and clearing of trades for Customer as DWR and Morgan Stanley shall agree from time to time. (b) PAYMENT OF INTEREST. The Customer's assets deposited with Morgan Stanley will be segregated or secured in accordance with the Commodity Exchange Act and regulations of the Commodity Futures Trading Commission ("CFTC") and will be invested in accord with Morgan Stanley's customary practice for investment of its futures customer funds. All of Customer's funds will be available for margin for the Customer's trading. Morgan Stanley shall pay to DWR at each month-end interest on Customer's funds in its possession as agreed between Morgan Stanley and DWR from time to time. The Customer understands that it will not receive any interest income on its assets held by Morgan Stanley other than that paid by DWR pursuant to the Customer's DWR Customer Agreement. DWR shall pay Morgan Stanley interest on any debit balances in the Account at such rates as Morgan Stanley and DWR shall agree from time to time. (c) NETTING. The parties agree that all payment obligations of Customer to Morgan Stanley under this Agreement and all payment obligations of Morgan Stanley to Customer under this Agreement will be netted against each other to result in one net payment amount. 4. CUSTOMER'S EVENTS OF DEFAULT; MORGAN STANLEY'S REMEDIES. (a) EVENTS OF DEFAULT. As used herein, each of the following shall be deemed an "Event of Default": (i) the commencement of a case under any Federal or state bankruptcy, insolvency or reorganization law, or the filing of a petition for the appointment of a receiver by or against Customer, an assignment made by Customer for the benefit of creditors, an admission in writing by Customer that it is insolvent or is unable to pay its debts when they mature, or the suspension by the Customer of its usual business or any material portion thereof; (ii) the issuance of any warrant or order of attachment against the Account or the levy of a judgment against the Account; (iii) if Customer is an employee benefit plan, the termination of Customer or the filing by Customer of a notice of intent to terminate with a governmental agency or body, or the receipt of a notice of intent to terminate Customer from a governmental agency or body, or the inability of Customer to pay benefits under the relevant employment benefit plan when due; (iv) the failure by Customer to deposit or maintain margins, to pay required premiums, or to make payments required by Section 3 hereof; (v) the failure by Customer to perform, in any material respect, its obligations hereunder. (b) REMEDIES. Upon the occurrence of an Event of Default or in the event Morgan Stanley, in its sole and absolute discretion, considers it necessary for its protection, Morgan Stanley shall have the right, in addition to any other remedy available to Morgan Stanley at law or in equity, and in addition to any other action Morgan Stanley may deem appropriate under the circumstances, to liquidate any or all open Contracts held in or for the Account, sell any or all of the securities or other property of Customer held by Morgan Stanley and to apply the proceeds thereof to any amounts owed by Customer to Morgan Stanley, borrow or buy any options, securities, Contracts or other property for the Account and cancel any unfilled orders for the purchase or sale of Contracts for the Account, or take such other or further actions Morgan Stanley, in its reasonable discretion, deems necessary or appropriate for its protection, all without demand for margin and without notice or advertisement. Any such action may be made at the discretion of Morgan Stanley in any commercially reasonable manner. In the event Morgan Stanley's position would not be jeopardized thereby, Morgan Stanley will make reasonable efforts under the circumstances to notify Customer prior to taking any such action. A prior demand or margin call of any kind from Morgan Stanley or prior notice from Morgan Stanley shall not be considered a waiver of Morgan Stanley's right to take any action without notice or demand. In the event Morgan Stanley exercises any remedies available to it under this Agreement, Customer shall reimburse, compensate and indemnify Morgan Stanley for any and all costs, losses, penalties, fines, taxes and damages that Morgan Stanley may incur, including reasonable attorneys' fees incurred in connection with the exercise of its remedies and the recovery of any such costs, losses, penalties, fines, taxes and damages. 5. STANDARD OF LIABILITY AND INDEMNIFICATION. (a) Standard of Liability. Morgan Stanley and its affiliates (as defined below) shall not be liable to Customer, the general partner or the limited partners, or any of its or their respective 2 successors or assigns, for any act, omission, conduct, or activity undertaken by or on behalf of the Customer pursuant to this Agreement which Morgan Stanley determines, in good faith, to be in the best interest of the Customer, unless such act, omission, conduct, or activity by Morgan Stanley or its affiliates constituted misconduct or negligence. Without limiting the foregoing, Morgan Stanley shall have no responsibility or liability to Customer hereunder (i) in connection with the performance or non-performance by any contract market, clearing house, clearing firm or other third party (including floor brokers not selected by Morgan Stanley and banks) to Morgan Stanley of its obligations in respect of any Contract or other property of Customer; (ii) as a result of any prediction, recommendation or advice made or given by a representative of Morgan Stanley whether or not made or given at the request of Customer; (iii) as a result of Morgan Stanley's reliance on any instructions, notices and communications that it believes to be that of an individual authorized to act on behalf of Customer; (iv) as a result of any delay in the performance or non-performance of any of Morgan Stanley's obligations hereunder directly or indirectly caused by the occurrence of any contingency beyond the control of Morgan Stanley including, but not limited to, the unscheduled closure of an exchange or contract market or delays in the transmission of orders due to breakdowns or failures of transmission or communication facilities, execution, and/or trading facilities or other systems (including, without limitation, GLOBEX, ACCESS, or other electronic trading systems, facilities or services), it being understood that Morgan Stanley shall be excused from performance of its obligations hereunder for such period of time as is reasonably necessary after such occurrence to remedy the effects therefrom; (v) as a result of any action taken by Morgan Stanley or its floor brokers to comply with Applicable Law; or (vi) for any acts or omissions of those neither employed nor supervised by Morgan Stanley. In no event will Morgan Stanley be liable to Customer for consequential, incidental or special damages hereunder. (b) INDEMNIFICATION BY CUSTOMER. Customer shall indemnify, defend and hold harmless Morgan Stanley 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 Morgan Stanley on behalf of Customer, including, without limitation, any demands, claims or lawsuits initiated by a limited partner (or assignee thereof); PROVIDED that (i) Morgan Stanley 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 the foregoing, no indemnification of Morgan Stanley or its affiliates by Customer shall be permitted for any losses, liabilities or expenses arising from or out of any alleged violation of federal or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (iii) a court of competent jurisdiction approves a settlement of the claims against the particular indemnitee and finds that indemnification of the settlement and related costs should be made, PROVIDED with regard to such court approval, the indemnitee must apprise the court of the position of the SEC and the positions of the respective securities administrators of Massachusetts, Missouri, Tennessee and/or those other states and jurisdictions in which the plaintiffs claim that they were offered or sold Units, with respect to indemnification for securities laws violations before seeking court approval for indemnification. Furthermore, in any action or proceeding brought by a limited partner in the right of Customer to which Morgan Stanley or any affiliate thereof is a party defendant, any such person shall be indemnified only to the extent and subject to the conditions specified in the Delaware Revised Uniform Limited Partnership Act, as amended, and this Section 5. The Customer shall make advances to Morgan Stanley or its affiliates hereunder only if: (i) the demand, claim lawsuit 3 or legal action relates to the performance of duties or services by such persons to 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. (c) INDEMNIFICATION BY MORGAN STANLEY. Morgan Stanley shall indemnify, defend and hold harmless 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 Morgan Stanley has approved such settlement) incurred as a direct result of the activities of Morgan Stanley 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 of Morgan Stanley or its affiliates. (d) LIMITATION ON INDEMNITIES. The indemnities provided in this Section 5 by Customer to Morgan Stanley 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 agreement of Morgan Stanley contained in this Agreement to the extent caused by such event. Likewise, the indemnities provided in this Section 5 by Morgan Stanley to Customer and 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 representation, warranty or agreement of Customer contained in this Agreement to the extent caused by such breach. (e) DEFINITION OF "AFFILIATE." As used in this Section 5, the term "affiliate" of Morgan Stanley 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 Morgan Stanley; (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 Morgan Stanley; (iii) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with, Morgan Stanley; or (iv) any officer or director of Morgan Stanley. Notwithstanding the foregoing, "affiliates" for purposes of this Section 5 shall include only those persons acting on behalf of Morgan Stanley and performing services for Customer within the scope of the authority of Morgan Stanley, as set forth in this Agreement. 6. GENERAL AGREEMENTS. The parties agree that: (a) MORGAN STANLEY'S RESPONSIBILITY. Morgan Stanley is not acting as a fiduciary, foundation manager, commodity pool operator, commodity trading advisor or investment adviser in respect of any Account opened by Customer. Morgan Stanley shall have no responsibility hereunder for compliance with any law or regulation governing the conduct of fiduciaries, foundation managers, commodity pool operators, commodity trading advisors or investment advisers. Morgan Stanley agrees to furnish to the Customer as soon as practicable all of the information from time to time in its possession which Customer may be required to furnish to its limited partners pursuant to its limited partnership agreement and as otherwise required by Applicable Law. Morgan Stanley shall disclose such information regarding itself and its affiliates (including, without limitation, financial statements) as may be required by the Customer for SEC, CFTC and state blue sky disclosure purposes. Morgan Stanley agrees to notify the applicable trading advisor for the Customer 4 (each a "Trading Advisor") immediately upon discovery of any error committed by Morgan Stanley or any of its agents with respect to a trade for the Customer's account which Morgan Stanley believes was not executed or cleared in accordance with proper instructions given by the Customer, its Trading Advisors or any other authorized agent of Customer. Errors made by floor brokers appointed or selected by Morgan Stanley shall constitute errors made by Morgan Stanley. However, Morgan Stanley shall not be responsible for errors committed by the Trading Advisors. Morgan Stanley agrees to report to DWR its own errors and the errors of any Trading Advisor for the Account which Morgan Stanley becomes aware of, provided that such reporting may be via telephone. Notwithstanding the foregoing, the failure to comply with such reporting obligation does not increase Morgan Stanley's liability for its own errors beyond that otherwise expressly set forth in this Agreement, nor does it make Morgan Stanley in any way responsible for errors committed by the Trading Advisors. Morgan Stanley acknowledges that the other partnerships of which Demeter Management Corporation (the general partner of Customer) is the general partner, do not constitute affiliates of the Customer. (b) ADVICE. All advice communicated by Morgan Stanley with respect to any Account opened by Customer hereunder is incidental to the conduct of Morgan Stanley's business as a futures commission merchant and such advice will not serve as the primary basis for any decision made by or on behalf of Customer in respect of the Account, regardless of whether Customer relies on the advice of Morgan Stanley in making any such decision. Customer acknowledges that Morgan Stanley and its managing directors, officers, employees and affiliates may take or hold positions in, or advise other customers concerning, Contracts that are the subject of advice from Morgan Stanley to Customer. The positions and advice of Morgan Stanley and its managing directors, officers, employees and affiliates may be inconsistent with or contrary to positions of, and the advice given by, Morgan Stanley to Customer. (c) RECORDING. Each of Morgan Stanley, the Customer, DWR and their respective officers, agents and employees, in their sole and absolute discretion, may record, on tape or otherwise, any telephone conversation between or among Morgan Stanley, the Customer or DWR with respect to the Account and transactions therein and each of Morgan Stanley, the Customer and DWR hereby agrees and consents thereto. (d) ACCEPTANCE OF ORDERS; POSITION LIMITS. (i) Morgan Stanley shall have the right to limit the size of open positions (net or gross) of Customer with respect to the Account at any time and to refuse acceptance of orders to establish new positions, whether such refusal or limitation is required by, or based on position limits imposed under, Applicable Law. Morgan Stanley shall immediately notify Customer of its rejection of any order. Unless specified by Customer, Morgan Stanley may designate the exchange or other markets (including, without limitation, GLOBEX or ACCESS) on which it will attempt to execute orders. (ii) Customer shall file or cause to be filed all applications or reports required under Applicable Law with the CFTC or the relevant contract market or clearing house, and shall 5 provide Morgan Stanley with a copy of such applications or reports and such other information as Morgan Stanley may reasonably request in connection therewith. (e) ORIGINAL AND VARIATION MARGIN; PREMIUMS; OTHER CONTRACT OBLIGATIONS. Customer shall make, or cause to be made, all applicable original margin, intra-day margin and premium payments, and perform all other obligations attendant to transactions or positions in such Contracts, as may be required by Applicable Law or by Morgan Stanley. Requests for margin deposits and/or premium payments may, at Morgan Stanley's election, be communicated to Customer orally, telephonically or in writing. Customer margin deposits and/or premium payments shall be made by wire transfer to Morgan Stanley's Customer Segregated Account and shall be in U.S. dollars unless Morgan Stanley and the Customer specifically agree otherwise. All Contracts for the Account shall be margined at the applicable exchange or clearing house minimum rates for speculative accounts. (f) SECURITY INTEREST AND RIGHTS RESPECTING COLLATERAL. Except to the extent proscribed by Applicable Law not subject to waiver, all Contracts, cash, securities, and/or any other property of Customer whatsoever (collectively, the "Collateral") at any time held by Morgan Stanley or its affiliates, or carried by others for the Account, hereby are pledged to Morgan Stanley and shall be subject to a general lien and security interest in Morgan Stanley's favor to secure any indebtedness or other amounts, obligations and/or liabilities at any time owing from Customer to Morgan Stanley (collectively, the "Customer's Liabilities"). Customer hereby grants Morgan Stanley the right to borrow, pledge, repledge, hypothecate, rehypothecate, loan or invest any of the Collateral held by Morgan Stanley, including utilizing the Collateral to purchase United States Government Treasury obligations pursuant to repurchase agreements or reverse repurchase agreements with any party, in each case without notice to Customer and without any obligation to pay or to account to Customer for any interest, income or benefit that may be derived therefrom. The rights of Morgan Stanley set forth above shall be qualified by any applicable requirements for segregation of customers' property under Applicable Law. Morgan Stanley commits to Customer that Morgan Stanley will not issue a Notice of Exclusive Control under the Control Agreement between Morgan Stanley and DWR unless Morgan Stanley determines there is a default under this Agreement. (g) REPORTS AND OBJECTIONS. All confirmations, purchase and sale notices, correction notices and account statements (collectively, "Statements") shall be submitted to Customer and shall be conclusive and binding on Customer unless Customer notifies Morgan Stanley of any objection thereto prior to the opening of trading on the contract market on which such transaction occurred on the business day following the day on which Customer receives such Statement; PROVIDED that, with respect to monthly Statements, Customer may notify Morgan Stanley of any objection thereto within five business days after receipt of such monthly Statement, provided the objection could not have been raised at the time any prior Statement was received by Customer as provided for above. Any such notice of objection, if given orally to Morgan Stanley, shall immediately (and no later than within one business day) be confirmed in writing by Customer. (h) DELIVERY PROCEDURES; OPTIONS ALLOCATION PROCEDURE. (i) Customer will provide Morgan Stanley with instructions either to liquidate Contracts previously established by Customer, make or take delivery under any such Contracts, or exercise options entered into by Customer, within such time limits as may be specified by Morgan Stanley. Morgan Stanley shall have no responsibility to take any action on behalf of Customer or positions in the Account unless and until Morgan Stanley receives oral or 6 written instructions reasonably acceptable to Morgan Stanley indicating the action Morgan Stanley is to take. Funds sufficient to take delivery pursuant to such Contract or deliverable grade commodities to make delivery pursuant to such Contract must be delivered to Morgan Stanley at such time as Morgan Stanley may require in connection with any delivery. (ii) Short option Contracts may be subject to exercise at any time. Exercise notices received by Morgan Stanley from the applicable contract market with respect to option Contracts sold by Customer may be allocated to Customer pursuant to a random allocation procedure, and Customer shall be bound by any such allocation of exercise notices. In the event of any allocation to Customer, unless Morgan Stanley has previously received instructions from Customer, Morgan Stanley's sole responsibility shall be to use its best efforts to notify Customer of such allocation. (iii) If Customer fails to comply with any of the foregoing obligations, Morgan Stanley may, in its sole and absolute discretion, liquidate any open positions, make or receive delivery of any commodities or instruments, or exercise or allow the expiration of any options, in such manner and on such terms as Morgan Stanley, in its sole and absolute discretion, deems necessary or appropriate, and Customer shall indemnify and hold Morgan Stanley harmless as a result of any action taken or not taken by Morgan Stanley in connection therewith or pursuant to Customer's instructions. (i) FINANCIAL AND OTHER INFORMATION. Customer shall provide to Morgan Stanley such financial information regarding Customer as Morgan Stanley may from time to time reasonably request. Customer shall notify Morgan Stanley immediately (and no later than within one business day) if the financial condition of Customer changes materially and adversely from that shown in the most recent financial information theretofore provided to Morgan Stanley. An investigation may be conducted pertaining to Customer's credit standing and business. (j) CURRENCY EXCHANGE RISK. Customer shall bear all risk and cost in respect of the conversion of currencies incident to transactions effected on behalf of Customer pursuant hereto. 7. TERMINATION. This Agreement may be terminated at any time by Customer or Morgan Stanley upon thirty (30) days by written notice to the other. In the event of such notice, Customer shall either close out open positions in the Account or arrange for such open positions to be transferred to another futures commission merchant. Upon satisfaction by Customer of all of Customer's Liabilities, Morgan Stanley shall transfer to another futures commission merchant all Contracts, if any, then held for the Account, and shall transfer to Customer or to another futures commission merchant, as Customer may instruct, all cash, securities and other property held in the Account, whereupon this Agreement shall terminate. Notwithstanding the foregoing, in the event Morgan Stanley is required by a regulatory authority to transfer the account to another futures commission merchant or in the event that Morgan Stanley abandons the Futures Commission Merchant ("FCM") business, then Morgan Stanley shall have the right to terminate this Agreement by written notice effective the date contained therein, provided that Morgan Stanley cooperates in the transfer of open positions to another FCM and that the termination of the Agreement is not made effective earlier than the completion of the transfer. 7 8. MISCELLANEOUS. (a) SEVERABILITY. If any provision of this Agreement is, or at any time becomes, inconsistent with any present or future law, rule or regulation of any exchange or other market, sovereign government or regulatory body thereof, and if any of these authorities have jurisdiction over the subject matter of this Agreement, the inconsistent provision shall be deemed superseded or modified to conform with such law, rule or regulation but in all other respects, this Agreement shall continue and remain in full force and effect. (b) BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties and their successors. Morgan Stanley shall have the right to transfer or assign this Agreement (and thereby the Account) to any successor entity in its sole and absolute discretion and without obtaining the consent of Customer. (c) ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties and supersedes any prior agreements between the parties as to the subject matter hereof. No provision of this Agreement shall in any respect be waived, altered, modified, or amended unless such waiver, alteration, modification or amendment is signed by the party against whom such waiver, alteration, modification or amendment is to be enforced. (d) CURRENCY DENOMINATION. Unless another currency is designated in the confirmations reporting transactions entered into by Customer, all margin deposits in connection with such transactions, and a debit or credit in the Account, shall be stated in United States dollars, and margin requirements, debits or credits expressed in another currency shall be converted into United States dollars at a rate of exchange determined by Morgan Stanley, in its sole and absolute discretion, on the basis of the then prevailing money market rates of exchange for such foreign currency. (e) INSTRUCTIONS, NOTICES OR COMMUNICATIONS. Except as specifically otherwise provided in this Agreement, all instructions, notices or other communications may be oral or written. All oral instructions, unless custom and usage of trade dictate otherwise, shall be promptly confirmed in writing. All written instructions, notices or other communications shall be addressed as follows: (i) if to Morgan Stanley: Morgan Stanley & Co. Incorporated One Pierrepont Plaza, 8th Floor Brooklyn, New York 11201 Attention: Commodity Operations Manager (ii) if to Customer, at the address as indicated on the Commodity Account Application. (f) RIGHTS AND REMEDIES CUMULATIVE. All rights and remedies arising under this Agreement as amended and modified from time to time are cumulative and not exclusive of any rights or remedies which may be available at law or otherwise. (g) NO WAIVER. No failure on the part of Morgan Stanley to exercise, and no delay in exercising, any contractual right will operate as a waiver thereof, nor will any single or partial exercise 8 by Morgan Stanley of any right preclude any other or future exercise thereof or the exercise of any other partial right. (h) GOVERNING LAW. THE INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CHOICE OF LAW. (i) CONSENT TO JURISDICTION. ANY LITIGATION BETWEEN MORGAN STANLEY AND CUSTOMER RELATING TO THIS AGREEMENT OR TRANSACTIONS HEREUNDER SHALL TAKE PLACE IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. CUSTOMER CONSENTS TO THE SERVICE OF PROCESS BY THE MAILING TO CUSTOMER OF COPIES OF SUCH COURT FILING BY CERTIFIED MAIL TO THE ADDRESS OF CUSTOMER AS IT APPEARS ON THE BOOKS AND RECORDS OF MORGAN STANLEY, SUCH SERVICE TO BE EFFECTIVE TEN DAYS AFTER MAILING. CUSTOMER HEREBY WAIVES IRREVOCABLY ANY IMMUNITY TO WHICH IT MIGHT OTHERWISE BE ENTITLED IN ANY ARBITRATION, ACTION AT LAW, SUIT IN EQUITY OR ANY OTHER PROCEEDING ARISING OUT OF OR BASED ON THIS AGREEMENT OR ANY TRANSACTION IN CONNECTION HEREWITH. (j) WAIVER OF JURY TRIAL. Customer hereby waives a trial by jury in any action arising out of or relating to this Agreement or any transaction in connection therewith. 9 (k) CUSTOMER ACKNOWLEDGEMENTS. (i) CUSTOMER HEREBY ACKNOWLEDGES THAT IT HAS RECEIVED AND UNDERSTANDS THE FOLLOWING DISCLOSURE STATEMENT PRESCRIBED BY THE CFTC AND FURNISHED HEREWITH (PLEASE INITIAL): /X/ RISK DISCLOSURE STATEMENT FOR FUTURES OPTIONS (Appendix A to CFTC Rule 1.55(c) transcribed in full on pages 1-3 of Booklet 2 -- Risk Disclosure Statements) (ii) IF CUSTOMER HAS INDICATED ON THE COMMODITY FUTURES ACCOUNT APPLICATION THAT ORDERS PLACED FOR THE ACCOUNT REPRESENT BONA FIDE HEDGING TRANSACTIONS, PLEASE COMPLETE THE FOLLOWING. You should note that CFTC Regulation ss.190.06 permits you to specify whether, in the unlikely event of Morgan Stanley's bankruptcy, you prefer the bankruptcy trustee to liquidate all positions in the Account. Accordingly, Customer hereby elects as follows: (PLEASE INITIAL): / / LIQUIDATE / / NOT LIQUIDATE IF NEITHER ALTERNATIVE IS INITIALED, CUSTOMER WILL BE DEEMED TO HAVE ELECTED TO HAVE ALL POSITIONS LIQUIDATED. THIS ELECTION MAY BE CHANGED AT ANY TIME BY WRITTEN NOTICE. IN WITNESS WHEREOF, Customer has executed this Agreement on the date indicated below. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. ("Customer") By: DEMETER MANAGEMENT CORPORATION, GENERAL PARTNER /s/ ROBERT E. MURRAY 06/06/00 ----------------------------------------------------------- (Signature) (Date) ROBERT E. MURRAY, PRESIDENT AND CHAIRMAN ----------------------------------------------------------- (Name & Title - Please Print) MORGAN STANLEY & CO. INCORPORATED /s/ W. THOMAS CLARK 06/06/00 ----------------------------------------------------------- (Signature) (Date) W. THOMAS CLARK, MANAGING DIRECTOR ----------------------------------------------------------- (Name & Title - Please Print) 10 ACKNOWLEDGED AND AGREED (AS TO SECTION 3(a) AND (b)) DEAN WITTER REYNOLDS INC. /S/ ROBERT E. MURRAY 06/06/00 ----------------------------------------------------------- (Signature) (Date) ROBERT E. MURRAY, SENIOR VICE PRESIDENT ----------------------------------------------------------- (Name & Title - Please Print) 11 EX-10.14 4 a2041380zex-10_14.txt EXHIBIT 10.14 FORM OF CUSTOMER AGREEMENT THIS CUSTOMER AGREEMENT (this "Agreement") made as of June __, 2000, by and among MORGAN STANLEY DEAN WITTER SPECTRUM ________________ L.P. a Delaware limited partnership (the "Customer") and MORGAN STANLEY & CO. INTERNATIONAL LIMITED ("MSIL"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, Customer and MSIL wish to enter into this Agreement to set forth the terms and conditions upon which MSIL will perform brokerage services with respect to Client Contracts, Contracts and Transactions for Customer through an account carried by MSIL on behalf and in the name of Customer (the "Account"). NOW, THEREFORE, the parties hereto hereby agree as follows: 1. INCORPORATION BY REFERENCE. The Non-Private 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. 2. STANDARD OF LIABILITY AND INDEMNITY. (a) STANDARD OF LIABILITY. MSIL and its affiliates (as defined below) shall not be liable to Customer, the general partner or the 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 MSIL determines, in good faith, to be in the best interest of the Customer, unless such act, omission, conduct, or activity by MSIL or its affiliates constituted misconduct or negligence. Without limiting the foregoing, MSIL shall have no responsibility or liability to Customer hereunder (i) in connection with the performance or non-performance by any Exchange, Clearing House or other third party (including floor brokers not selected by MSIL) and/or Broker to MSIL of its obligations in respect of any Contract or Transaction or other property of Customer; (ii) as a result of any prediction, recommendation or advice made or given by a representative of MSIL whether or not made or given at the request of Customer; (iii) as a result of MSIL's reliance on any instructions, notices and communications that it believes to be that of an individual authorized to act on behalf of Customer; (iv) as a result of any delay in the performance or non-performance of any of MSIL's obligations hereunder directly or indirectly caused by the occurrence of any contingency beyond the control of MSIL including, but not limited to, the unscheduled closure of an Exchange or Clearing House or delays in the transmission of orders due to breakdowns or failures of transmission or communication facilities, execution, and/or trading facilities or other systems, it being understood that MSIL shall be excused from performance of its obligations hereunder for such period of time as is reasonably necessary after such occurrence to remedy the effects therefrom; (v) as a result of any action taken by MSIL to comply with Market Requirements or Applicable Law; or (vi) for any acts or omissions of those neither employed nor supervised by MSIL (excluding floor brokers selected by MSIL). In no event will MSIL be liable to Customer for consequential, incidental or special damages hereunder. (b) INDEMNIFICATION BY CUSTOMER. Customer shall indemnify, defend and hold harmless MSIL 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 MSIL on behalf of Customer, including, without limitation, any demands, claims or lawsuits initiated by a limited partner (or assignee thereof); PROVIDED that (i) MSIL 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 the foregoing, no indemnification of MSIL or its affiliates by Customer shall be permitted for any losses, liabilities or expenses arising from or out of any alleged violation of federal or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (iii) a court of competent jurisdiction approves a settlement of the claims against the particular indemnitee and finds that indemnification of the settlement and related costs should be made, PROVIDED with regard to such court approval, the indemnitee must apprise the court of the position of the SEC and the positions of the respective securities administrators of Massachusetts, Missouri, Tennessee and/or those other states and jurisdictions in which the plaintiffs claim that they were offered or sold Units, with 2 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 Customer to which MSIL or any affiliate thereof is a party defendant, any such person shall be indemnified only to the extent and subject to the conditions specified in the Delaware Revised Uniform Limited Partnership Act, as amended, and this Section 2. The Customer shall make advances to MSIL 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 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. (c) INDEMNIFICATION BY MSIL. MSIL shall indemnify, defend and hold harmless 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 MSIL has approved such settlement) incurred as a direct result of the activities of MSIL 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 of MSIL or its affiliates. (d) LIMITATION ON INDEMNITIES. The indemnities provided in this Section 2 by Customer to MSIL 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 agreement of MSIL contained in this Agreement to the extent caused by such event. Likewise, the indemnities provided in this Section 2 by MSIL to Customer and 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 representation, warranty or agreement of Customer contained in this Agreement to the extent caused by such breach. (e) DEFINITION OF "AFFILIATE." As used in this Section 2, the term "affiliate" of MSIL 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 3 the outstanding voting securities of MSIL; (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 MSIL; (iii) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with, MSIL; or (iv) any officer or director of MSIL. Notwithstanding the foregoing, "affiliates" for purposes of this Section 2 shall include only those persons acting on behalf of MSIL and performing services for Customer within the scope of the authority of MSIL, as set forth in this Agreement. 3. MSIL RESPONSIBILITIES. MSIL agrees to notify the applicable trading advisor for the Customer immediately upon discovery of any error committed by MSIL or any of its agents with respect to a trade for the Account which MSIL believes was not executed or cleared in accordance with proper instructions given by the Customer, its trading advisors or any other authorized agent of Customer. Errors made by floor brokers appointed or selected by MSIL shall constitute errors made by MSIL. However, MSIL shall not be responsible for errors committed by the trading advisors. MSIL agrees to report to Dean Witter Reynolds Inc. ("DWR") its own errors and the errors of any trading advisor for the Account which MSIL becomes aware of, provided that such reporting may be via telephone. Notwithstanding the foregoing, the failure to comply with such reporting obligation does not increase MSIL's liability for its own errors beyond that otherwise expressly set forth in this Agreement, nor does it make MSIL in any way responsible for errors committed by the trading advisors. MSIL acknowledges that the other partnerships of which Demeter Management Corporation (the general partner of Customer) is the general partner or trading manager, do not constitute affiliates of the Customer. 4. MINIMUM MARGINS. All Contracts for the Account shall be margined at the applicable Exchange or Clearing House minimum rates for speculative accounts. 5. PAYMENT OF INTEREST. MSIL shall pay to DWR at each month-end interest on Customer's funds in its possession as agreed between MSIL and DWR from time to time. Customer understands that it will not 4 receive any interest income on its assets held by MSIL other than that paid by DWR pursuant to the Customer's DWR Customer Agreement. DWR (and not the Customer) shall pay MSIL interest on any debit balances in the Account at such rates as MSIL and DWR shall agree from time to time. 6. RECORDING. Each of MSIL, the Customer, and the Customer's agents (including DWR), in their sole and absolute discretion, may record, on tape or otherwise, any telephone conversation between or among MSIL, the Customer or the Customer's agents with respect to the Account and Transactions therein and each of MSIL and the Customer hereby agrees and consents thereto. 7. TERMINATION. This Agreement may be terminated at any time by any party upon thirty (30) days' prior written notice to the other parties hereto. In the event of such notice, Customer shall either close out open positions in the Account or arrange for such open positions to be transferred to another futures broker. Upon satisfaction by Customer of all of Customer's liabilities to MSIL, MSIL shall transfer to another futures broker all Contracts, if any, then held for the Account, and shall transfer to Customer or to another futures broker, as Customer may instruct, all cash, securities and other property held in the Account, whereupon this Agreement shall terminate. Notwithstanding the foregoing, in the event MSIL is required by a regulatory authority to transfer the Account to another futures broker or in the event that MSIL abandons the futures brokerage business, then MSIL shall have the right to terminate this Agreement by written notice effective the date contained therein, provided that MSIL cooperates in the transfer of open positions to another futures broker and that the termination of the Agreement is not made effective earlier than the completion of the transfer. 8. 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 with respect to such matters unless in writing and signed by the party against whom enforcement is sought. 9. ASSIGNMENT. This Agreement may not be assigned by any party without the express written consent of the other parties. 10. AMENDMENT. This Agreement may not be amended except by the written consent of the parties and provided such amendment is consistent with Customer's Limited Partnership Agreement. 5 11. NOTICES. All notices required or desired to be delivered under this Agreement shall be sent to the following addresses: if to the Partnership: MORGAN STANLEY DEAN WITTER SPECTRUM _________________ L.P . c/o Demeter Management Corporation Two World Trade Center, 62nd Floor New York, New York 10048 Attention: Robert E. Murray if to MSIL: as set forth in the Non-Private Customer Agreement. 12. 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. 13. 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. IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of the undersigned as of the day and year first above written. MORGAN STANLEY DEAN WITTER SPECTRUM ___________ L.P. By: Demeter Management Corporation General Partner By: ------------------------------- Robert E. Murray President MORGAN STANLEY & CO. INTERNATIONAL LIMITED By: ------------------------------- Name: Title: 6 MORGAN STANLEY & CO. INTERNATIONAL LIMITED MORGAN STANLEY SECURITIES LIMITED Customer Documents (Market Counterparty / Non-Private Customer) Exchange-traded Derivatives Only MAY 1999 NON-PRIVATE CUSTOMER DOCUMENTS (EXCHANGE-TRADED DERIVATIVES) TABLE OF CONTENTS PLEASE READ THE CONTENTS OF PART ONE BEFORE SIGNING THE CUSTOMER SIGNATURES PAGES IN PART THREE. PAGE PART ONE: NON-PRIVATE CUSTOMER AGREEMENT 1 (EXCHANGE-TRADED DERIVATIVES) Chapter I Introduction 1 II Terms Applicable to Dealings 4 III Margin 6 IV Material Interests 9 V Powers and Exclusions of Liability 10 VI Authorisation 13 VII General 14 PART TWO: MASTER NETTING AGREEMENT 17 PART THREE: SCHEDULES 26 PART FOUR: CUSTOMER SIGNATURE PAGES 32 Non-Private Customer Documents Customers Domiciled in Luxembourg only Third Party Trading Authorisation Certificates of Authority to Deal Certificate of Trustees PART ONE NON-PRIVATE CUSTOMER AGREEMENT (EXCHANGE-TRADED DERIVATIVES) Made in compliance with the Rules of The Securities and Futures Authority Limited ("SFA") THIS AGREEMENT is made as of the date specified on the first customer signature page below BETWEEN: (A) You, as the client named on the customer signature page; and (B) MORGAN STANLEY & CO. INTERNATIONAL LIMITED ("MSIL") AND/OR MORGAN STANLEY SECURITIES LIMITED ("MSSL") BOTH OF 25 CABOT SQUARE, CANARY WHARF, LONDON E14 4QA . MSIL IS REGULATED BY SFA, AND MSSL IS REGULATED BY SFA AND A MEMBER OF THE LONDON STOCK EXCHANGE. IT IS HEREBY AGREED AS FOLLOWS: We will treat you as a NON-PRIVATE CUSTOMER regarding all investment business regulated by SFA which we carry on for or with you pursuant to this Agreement other than for any business referred to below under "Market Counterparties". All investment business mentioned in Clause 2 below which we carry out with you or on your behalf as a Non-Private Customer will be carried out under the terms and conditions set out below (as amended or supplemented from time to time) and the Customer Documents. MARKET COUNTERPARTIES The terms of this Agreement and the Customer Documents will also apply to investment business which we carry out with you or on your behalf if, in respect of such business, you are a market counterparty. CHAPTER 1 - INTRODUCTION 1. INTERPRETATION In the Customer Agreement, the words and phrases below have the following meanings:- "ACTING IN DUE CAPACITY" in relation to you means as beneficial owner or, where some other person is beneficial owner, as trustee or agent for and (in either case) with all requisite authorities from that other person; "APPLICABLE LAW" includes without limitation (a) Market Requirements, and (b) the rules, regulations, orders, directives, announcements, decisions, procedures, terms, other requirements and/or customs made, given or issued by, or published under the authority of any Regulatory Body, all as amended, supplemented or replaced from time to time; "APPROVED CUSTODIAN" means such bank, financial institution or company approved by us, or any nominee company or trust corporation which is a subsidiary thereof; "ASSET" means currencies, Securities (including futures or option contracts), deposits or physical assets; "ASSOCIATED FIRM" means any company in the Morgan Stanley Dean Witter & Co. group of companies and, as the context requires, any other person connected with us. "BROKER" means such member of an Exchange and/or Clearing House as is instructed by us to enter, clear or settle any transaction on an Exchange; "CHARGED SECURITIES" means such Securities as (a) with our agreement, you (or any person for your account) by way of security have deposited with or transferred to or may hereafter deposit with or transfer to us or our agents or nominees (or with or to our or their order, account, direction or control), wholly or partly in satisfaction of a demand for Margin. We shall have sole discretion to determine the type, amount and quality of the Securities that you may deposit or transfer as Charged Securities; Page 1 (b) are or may at any time hereafter be held (in a clearance system or otherwise) (i) to our order by or for the account of an Approved Custodian or (ii) by, or to the order of, for the account of or under the control or direction of us (or our agents or nominees) and in either case which have, with our agreement, by way of security been made subject to the terms of the charge in Clause 19.2; "CLEARING HOUSE" means any clearing house providing settlement or clearing or similar services for, or as part of, an Exchange; "CLIENT CONTRACT" means a futures or option contract between us and you, which is matched by an identical Contract; "CLIENT MONEY" means all initial and variation cash Margin, option premiums and all other sums received from or due to you pursuant to the Customer Documents which is "Client Money" within the meaning of the Client Money Regulations; "CLIENT MONEY REGULATIONS" means The Financial Services (Client Money) Regulations 1991, The Financial Services (Client Money) (Supplementary) Regulations 1991 and the related client money rules in Chapter 4 of the rules of SFA; "CLOSE OUT" means the entering into of a Contract equal and opposite to a Contract previously entered into (and each matching a Client Contract) to create a level position in relation to the Assets underlying the Contracts, or in relation to the Contracts themselves, and fix the amount of profit or loss arising from such Contracts and the corresponding Client Contracts; "CONTRACT" means a futures or option contract entered into by us on an Exchange or with or through a Broker pursuant to Clause 3; "CUSTOMER DOCUMENTS" means this Agreement, Master Netting Agreement, any notice (including but not limited to any "Notice of treatment as a Non-Private Customer" or "Notice of treatment as a Market Counterparty") and any Further Schedules (including, without limitation, confirmations, contract notes and statements) and additional documents relating directly to or indirectly to the services provided under Clause 2 below and accompanying this Agreement whether or not expressly incorporated in this Agreement and each as amended and/or supplemented from time to time; "EXCHANGE" means any exchange, market or association of dealers in any part of the world on or through which investments or currencies or assets underlying, derived from or otherwise related directly or indirectly to investments or currencies are bought and sold and includes, without limitation, any automated trading system administered by an Exchange; "FSA" means the Financial Services Authority and any successor thereto, the central regulatory authority for United Kingdom investment business; "FSA1986" means the Financial Services Act 1986 of the United Kingdom and any successor thereto; "FURTHER SCHEDULE" means any further schedule or notice issued by us to you after the date of this Agreement; "A FUTURES OR OPTION CONTRACT" means a contract, for future delivery and/or settlement, to (a) buy or sell an Asset and/or (b) pay or receive a sum of money by reference to an index or formula (including without limitation the price or value of any Assets); "LCH" means The London Clearing House Limited; "LIFFE" means the London International Financial Futures and Options Exchange and/or, as the context requires, LIFFE Administration and Management; "MARGIN" means the amount of cash (including premiums) as may from time to time be demanded by us from you to protect us against any loss or risk of loss on present, future or contemplated Contracts and/or Client Contracts; "MARGIN ACCOUNT" means a client bank account with such approved bank or banks as we may from time to time determine, which (in the case of any such account in which Client Money is held) is a margined transaction bank account within the meaning of the Client Money Regulations; Page 2 "MARKET REQUIREMENTS" means (a) the constitution, by-laws, rules, regulations, orders, directives, announcements, decisions, procedures, standard terms and customs made, issued by, or published under the authority of any Exchange, Clearing House, self-regulating organisation or market of which we or any relevant Associated Firm or any Broker is a member, or to whose authority we are or any of them is subject, directly or indirectly, or where the relevant transaction is executed and/or cleared, and (b) any other requirements of the relevant Exchange, Clearing House or Broker (including without limitation any and all agreements and deeds entered into by us or any relevant Associated Firm or Broker with or in favour of the relevant Exchange, Clearing House or Broker), all as amended, supplemented or replaced from time to time; "OPEN CONTRACT" means a Contract which has not been closed out and which has not yet matured; "REGULATORY BODY" means any Exchange, Clearing House, governmental, quasi-governmental or other department, agency or self-regulating organisation of which we are a member which has direct or indirect regulatory or enforcement authority or responsibility over us (or to any relevant Associated Firm or Broker), or any investment business conducted by us or such relevant Associated Firm or Broker for or with you; "RULES" means the FSA Statements of Principle, the rules of SFA, the Client Money Regulations and the Common Unsolicited Calls Regulations; "SECURITIES" means securities, investments and financial instruments; "TAXES" means taxes, duties, imposts and fiscal and regulatory charges of any nature, wherever and whenever imposed, including without limitation, value added taxes, stamp and other documentary taxes and Exchanges and Clearing House and investment industry levies; and "TRANSACTION" means the entering into of a Contract, closing out or effecting delivery and/or settlement of a Contract (which terms shall include exercise or allocation of an option Contract) pursuant to the Customer Documents. References herein to "we" or "us" shall mean MSIL and/or MSSL and/or each or any of our Associated Firms or members of a relevant Exchange to whom we have delegated pursuant to Clause 3 and /or (in Clauses 9, 21 and 22) any associate of MSIL and/or MSSL, and references to "our" shall be construed accordingly. Any words or expressions to which a meaning is given in the Rules, shall, except where the context indicates otherwise, have the same meaning in the Customer Documents. Words importing the singular shall, where the context permits, include the plural and vice versa. The expression "person" shall include any firm, partnership, association of persons and body corporate and any such persons acting jointly and the personal representatives or successors in title of any such person. Where the customer comprises two or more persons the liabilities and obligations under the Customer Documents shall be joint and several. References to "writing" shall include telex, facsimile transmission or transmission of text by any other electronic means. References to statutory provisions, rules and regulations shall include any modification, re-enactment or re-making thereof. All headings are for convenience only and shall not affect the interpretation of the Customer Documents. 2. SERVICES TO BE PROVIDED 2.1 The services which we may provide to you are general investment and dealing services in financial and commodity options, futures and contracts for differences traded on an Exchange, together with related research, advice, clearing and settlement facilities and any other services agreed between us. 2.2 We shall not undertake discretionary transactions for you unless you have signed and returned to us a Discretionary Trading Authorisation. 3. DELEGATION 3.1 We may arrange for any of our Associated Firms or any other member of a relevant Exchange to carry out the services to you, which we agree to provide to you pursuant to this Agreement. 3.2 We may designate a Broker to execute, clear and/or settle any transaction subject to the Rules and to such conditions as we may impose. Page 3 4. INTRODUCTION OF BUSINESS 4.1. We may introduce you to any Associated Firm outside the United Kingdom and you hereby authorise us on any such Associated Firm's behalf to expressly invite it to call you with a view to entering into investment transactions from time to time with or for you. If such Associated Firm agrees to do so: (a) you shall have a direct relationship solely with such Associated Firm and, in any dispute between, or claim against, you and/or any such Associated Firm, you shall have no recourse to us; and (b) you may place orders with us for the Associated Firm to execute, subject to its terms. In any of these transactions, we will act as agent for the Associated Firm, and nothing we do in connection with such transactions will make us your agent. 4.2 For any transaction or other investment services provided to you by such Associated Firms, only the following provisions of this Agreement will apply as between us and you, as the context may require and each as amended from time to time; (a) Clauses 1, 2, 4, 5.2, 8, 9, 21, 22, 26, 29-31and Chapters VI and VII, Schedule 2 and Schedule 3; and (b) in the case of the latest Notice of Treatment sent by us to you as a non-private customer or market counterparty, paragraphs 1 and 2 of that Notice. 5. DEALINGS AND RULES, REGULATIONS AND RESTRICTIONS 5.1 All Client Contracts and Transactions shall be subject to applicable Market Requirements and Applicable Law; provided that: (a) if there is a conflict between (i) the Customer Documents and (ii) any such requirements and/or law, the latter will prevail; and (b) we are entitled to take or omit to take any action we consider fit or appropriate to ensure compliance with such laws and requirements; all actions we take will be binding on you. 5.2 We are authorised by you at any time to do any thing or disclose any matters concerning you or your dealings (whether or not pursuant to the Customer Documents) if required by any Applicable Law, or which we are requested to do or disclose by any Regulatory Body. CHAPTER II - TERMS APPLICABLE TO DEALINGS 6. CONTRACTS AND CLIENT CONTRACTS 6.1 If we carry out a Transaction on your request or pursuant to Clause 24 below: (a) a corresponding Client Contract shall come into existence on the purchase or sale of a Contract or, as the case may be exercise and allocation of an option Contract in respect of which the underlying Asset is a futures Contract. The Client Contract will terminate when the Contract is closed out, settled or delivered; and (b) you will have the obligations in relation to the Transaction and the Client Contract that are mentioned in this Agreement and the Customer Documents. 6.2 For each Client Contract, we will have made or placed an equivalent Contract on the floor of the relevant market (by open outcry on the floor of, or on an automated trading system administered by, a futures and options Exchange or the futures or options market of any other Exchange) or will have entered into an equivalent Contract with or through a Broker pursuant to Clause 3 and we shall thus have an interest in the Transaction. 6.3 Any Contract which we acquire as a result of your instructions will, unless the position has been closed out, result in you becoming liable to us in relation to the corresponding Client Contract for actual delivery of its underlying Asset or payment of the relevant price, under and subject to Market Requirements. 7. ACCEPTANCE AND EXECUTION OF ORDERS 7.1 Every order which we may take is accepted and executed, and every Client Contract shall be entered into, on the basis that we contract with you only as a principal and not as agent for you unless otherwise required by Market Requirements. 7.2 If we have to carry out a Transaction as agent on an Exchange where we would not deal as principal then, for that Transaction, you agree to be bound by all Market Requirements of that Exchange and you undertake to sign and deliver Page 4 to us any further Customer Documents as we may require. Unless we otherwise require, Market Requirements of that Exchange will be incorporated herein. 8. AGGREGATION OF ORDERS We may aggregate your orders with our own (in-house) orders and/or orders of our associates, connected customers and/or other customers. This aggregation may operate on some occasions to your advantage and on others to your disadvantage. 9. RESEARCH AND RECOMMENDATIONS 9.1 We are under no obligation to provide research reports and recommendations to you and, where provided, you may not receive them at the same time as our other customers. 9.2 Our employees, officers and directors may receive, know about, act upon or use such research reports and recommendations before they are received by our customers. We are under no obligation to take account of these reports or recommendations when we deal with or for you. 10. CLIENT ACTIONS 10.1 You will take any action and give us in relation to the corresponding Client Contract any information that we ask for in relation to the delivery, settlement, and, if a purchased Option Contract, the exercise or allocation, of any Contract which has not been closed out. 10.2 Notwithstanding Clause 10.1 above and regardless of any right of equity, set-off or counterclaim which you may have or allege against us, any of our Associated Firms or any person connected with us, you will promptly take all action necessary (including the supply of information) to enable us to settle or deliver any Contract which you have instructed us to open and which has not been closed out at the time such Contract is to be performed. 11. CLOSING OUT 11.1 Subject in particular to Clauses 3 to 8 and 33.3, Market Requirements and any further requirements we notify you of, you may at any time before the date for performance of a Client Contract request us to close out the matching Contract or, if a purchased option Contract, exercise that Contract in accordance with its terms. If the closing out or exercise results in a sum of money being due to us, the relevant Exchange, Clearing House and/or Broker, we shall notify you of that amount, which will be payable by you immediately. 11.2 Unless we in our absolute discretion determine otherwise or we accept instructions from you to do otherwise, equal and opposite Contracts and Client Contracts (closing out being determined on a "first in, first out" basis) will automatically fix the amount of profit or loss in relation thereto. 12. ALLOCATION If the relevant Clearing House and/or Broker does not allocate long Open Contracts at maturity directly to a specific account of ours or to short Client Contracts (or vice versa) we may allocate those Contracts at random or in a way which seems to us to be most equitable as between clients. If dealings on our own account are involved at the same time, allocation will be to all clients first, and we will receive no allocation until all relevant Client Contracts have been satisfied. 13. DELIVERY TO YOU When we receive any amounts and/or Assets (including documents of title), pursuant to a Transaction, provided that you have fulfilled all your obligations under this Agreement and subject to Clause 15, 18.3, 22.2 and 24.2, we will deliver such amounts and/or Assets to you in respect of the corresponding Client Contract, after deduction of any Charges and Taxes. 14. OPTION PREMIUMS In respect of an option Contract matching a Client Contract:- (a) if you are a buyer, you will pay to us on demand any premium payable under the rules of the relevant Exchange and/or Clearing House ("the premium"); and (b) if you are a seller, when we receive premium from the relevant Exchange, Clearing House and/or Broker we will pay it into the Margin Account as Margin for your account. You may be required to pay further margin in respect of the relevant Contract and corresponding Client Contract. 15. ALTERATION OF CONTRACTS If the relevant Exchange, Clearing House or Broker requires any terms or conditions of any Contract matching a Client Contract (including the Assets subject to it) to be altered, we may take all actions as may, in our absolute discretion, be necessary, desirable or expedient to comply with such requirements or to avoid or mitigate loss resulting from any Page 5 alteration. All actions taken by us will be binding on you, and any alteration will be deemed incorporated into the corresponding Client Contract. We shall notify you of any alteration (in advance, where reasonably practicable). 16. CHARGES 16.1 Our charges will either be a commission or a mark-up or mark-down on the fee payable by us to any Exchange, Clearing House and/or Broker for the relevant Transaction and/or such other amounts as may be agreed from time to time between you and us. Our charges vary according to the transaction and customer, so the charges you pay for any particular transaction may differ from those another customer may pay in a similar transaction. 16.2 We may share charges with our Associated Firms or other third parties or receive remuneration from them for transactions carried out with or for you. Details of any such arrangements will be made available to you on your written request. 17. INTEREST 17.1 We will not pay interest to you on any Client Money or other money, which we receive from you or hold on your behalf, unless we separately agree to do so. 17.2 Interest will accrue on the amount that you have not paid us when due until payment (as well after as before judgement). Such interest will be calculated at the rate not to exceed 2 per cent per annum above the base rate or prime rate (or local equivalent thereof) of the bank (or if there is more than one bank, the one determined by us in our absolute discretion) at which we maintain our principal securities settlement or other relevant account in the relevant currency. If such rate cannot be ascertained for any reason or is insufficient in our sole judgement to compensate us for our loss or expense, such interest shall be calculated at the rate per annum conclusively determined by us to be equal to the loss of interest we suffer or, as applicable, our cost of funding at prevailing markets rates the amount you owe from such sources and for such periods as we may decide. CHAPTER III - MARGIN 18. MARGIN PAYMENT AND CLIENT MONEY 18.1 You will pay to us upon demand such sums as we may in our absolute discretion require from time to time as Margin in respect of all present, future or contemplated Contracts and Client Contracts. 18.2 As soon as practicable we will pay or credit all Client Money or other Margin to a Margin Account at an approved bank (which may be any of our Associated Firms) that we select. The currency of the Margin you pay to us shall be the currency of the relevant underlying Contract or, if agreed by us and you, another currency. Settlement of all transactions (including Margin payments thereon) will be made in the currency of the relevant underlying Contract and you bear all risk and cost in respect of any conversion of currency in a Margin Account. Any such conversion will be made by us at such reasonable market rate or rates as we will determine. 18.3 You agree that we will hold your interest under the trust declared under the Client Money Regulations and all other Client Money, which is in a Margin Account on trust in the following order of priority: (a) for ourselves to the extent of all amounts which are or may become due to us or payable by us on your behalf under or pursuant to the Customer Documents; and, thereafter (b) for you to the extent of any surplus which is due to you after the payment of all amounts due to or payable by us under paragraph (a) above. 18.4 We may withdraw Client Money and/or any other money held in a Margin Account to pay to any Broker, Clearing House, Exchange or other parties all margins, premiums and other sums on futures and options Contracts demanded or due from us in respect of our clients, and for any other purposes allowed under the Client Money Regulations. 18.5 Subject to the terms of the Client Money Regulations, any loss incurred on default by any Exchange, Clearing House or Broker in respect of Margin paid by us shall be borne by all of our clients at the date of such loss PARI PASSU, in proportion to their respective entitlement to monies in the relevant Margin Account at that time. 18.6 Where you agree to effect transactions, or if you give instructions to us to effect transactions in a jurisdiction outside the United Kingdom, then we may need to appoint an intermediate broker, settlement agent or custodian to undertake those transactions. In order to meet the margin and settlement obligations to the relevant Exchange or Clearing House, we may need to pass your money and/or assets to an intermediate broker, settlement agent or custodian in that jurisdiction. In that event you should note that there may be different settlement and legal and regulatory requirements in these overseas jurisdictions together with different practices for the separate identification of your investments and your money might not be protected as effectively when held by such an intermediate broker as if it were held in a client bank account in the United Kingdom. You should note that in the event of a shortfall arising on the money available to Page 6 meet the claims of segregated clients, your claim will be restricted to the money held in our client bank accounts in respect of transactions carried on through that intermediate broker and to any money received from the intermediate broker relating to those transactions. 18.7 The approved bank at which your money is held may be located outside the United Kingdom. You should note that the legal and regulatory regime applying to such banks may be different from that of the United Kingdom and in the event of a default of the approved bank, your money may be treated differently from the position that would apply if the money was held by an approved bank in the United Kingdom. 19. MARGIN SECURITIES 19.1 Amounts you owe to us by way of Margin under Clause 18 may, in our absolute discretion, be satisfied by way of deposit or transfer of Charged Securities as security. We may, in our discretion, permit you to deliver by way of Margin, Charged Securities other than those accepted by the relevant Exchange or Clearing House as Margin. Our charges for providing this facility to you will be separately agreed with you. This Clause 19 will apply to all Securities delivered by way of Margin. Charged Securities will not (unless we agree otherwise) be registered in your name. 19.2 As continuing security for all your liabilities and obligations under the Customer Documents, you acting in due capacity (and with the intent that the security so constituted shall be a security in our favour extending to all beneficial interests in the assets hereby charged and to any proceeds of sale or other realisation thereof, including any redemption monies paid or payable in respect thereof) hereby assign, charge and pledge to us, free of all adverse interests whatsoever by way of first fixed charge, all Charged Securities. Each Approved Custodian will hold to our order all Charged Securities held by it for its account. 19.3 You will forthwith execute on request all transfers, assignments, mortgages, charges and other documents, give notices and directions and do any other acts and things as we may specify, to enable us or our nominee to be registered as the owner of or otherwise obtain legal title to any Charged Securities, to perfect our rights with respect to the security referred to in this Clause 19, to secure further your liabilities and obligations, to facilitate the exercise of our rights hereunder, or to satisfy any Market Requirements. 19.4 You will not, without our prior written consent, at any time during the term of this Agreement, grant or agree to grant any option over, sell, assign or transfer, or agree to attempt to sell, assign or transfer, or create, agree or attempt to create, or allow to exist any charge, lien, or other encumbrance on or over any or all of the Charged Securities, except for the charge set out above. 19.5 We will hold all Charged Securities for the purposes of satisfying any and all of your obligations and liabilities under the Customer Documents. We may, without prior notice, free of any interest therein of yours, any client of yours or any other person for whom you are trustee or agent: (a) deposit, charge, pledge or otherwise create security over the Charged Securities with, to the order of or in favour of any Exchange, Clearing House or Broker (i) on such terms as such Exchange or Clearing House may prescribe, and (ii) on terms that, subject to the Rules, the Broker may deal with the Charged Securities in accordance with Market Requirements and any agreement made with us; The relevant Exchange, Clearing House or Broker may enforce and retain such deposit, charge, pledge or other security to satisfy any obligations of yours or ours to the Exchange, Clearing House or Broker; and (b) register, sell, realise, charge or otherwise deal with the Charged Securities on such terms (including as to the consideration received therefor) as we may in our absolute discretion think fit (with prior reference to you where practicable, but in any case with subsequent notice to you, and without being responsible for any loss or diminution in price). Any consideration received will be credited to the Margin Account. If Charged Securities are denominated in a different currency from that in which any relevant cost, damages, loss, liability or expense is denominated, we may convert any amount realised at such rate as we determine at the time. 19.6 Where we deposit, pledge or charge Charged Securities under Clause 19.5(a), the part of the proceeds of any sale of those securities which exceeds your margin requirements to us will be subject, in the event of our default, to the pooling rules under the Client Money Regulations. This means that money held in our Client Money bank accounts is pooled and distributed PARI PASSU to meet the claims of all customers who are entitled to protection under the Client Money Regulations. If there is a shortfall in an overseas Client Money bank account, a separate pool may be formed for all customers whose money was held in that account. Page 7 19.7 When we are satisfied that all costs, damages, losses, liabilities and expenses incurred under the Customer Documents have been satisfied, discharged or otherwise released, we may re-transfer or, re-deliver any certificates or documents of title relating to you upon request. 19.8 You agree that if we re-transfer or re-deliver fungible Securities (whether Charged Securities or otherwise) to you, these need not be the identical Securities originally deposited, charged, or transferred to us, and you will accept Securities of the same class and denomination or other Securities which then represent the same. 19.9 Pending the re-transfer or re-delivery we will credit any income received in respect of Charged Securities, net of any Taxes payable by us (whether by withholding or otherwise) on the income, to the Margin Account. You may direct us as to the exercise of any voting or other rights attached to or conferred on any Charged Securities. 19.10 Unless the context otherwise requires, references in this Clause 19 to "we" or "us" includes references to any person holding any of the Securities or in whose name any of them may be registered. 20. CUSTODIAN ACTIVITIES AND DOCUMENTS OF TITLE 20.1 We may (subject to the Rules) act, or may appoint any of our Associated Firms which are eligible custodians or any other eligible custodian (as defined by the SFA) to act, as custodians of your documents of title or certificates evidencing title to your assets (including Charged Securities, except where absolute title passes to us). 20.2 If we consider it appropriate to register your registrable assets in a name other than your own, then we may arrange such registration in the name of a nominee company, which is controlled by: (a) ourselves; (b) an Associated Firm; (c) a recognised or designated investment exchange; or (d) an eligible custodian (as defined by the Rules) which may be an Associated Firm. Such assets will be held by such nominee on trust for you, except that, in the case of assets held by a custodian which is not an affiliate of ours, the nominee shall hold its rights against such custodian on trust for you. 20.3 Where, due to the nature of the law or market practice of an overseas jurisdiction, it is in your best interests, or it is not feasible to do otherwise we shall register your assets in the name of an eligible custodian or ourselves. If your assets are registered in our name you should note that your assets may not be segregated from the assets of our firm and in the event of our default you may not be as well protected. 20.4 Assets will only be held/registered outside the normal SFA requirements upon your specific written instructions. You should note that the consequences of doing so are entirely at your own risk. 20.5 Where assets are held on your behalf overseas, you should note that there may be different settlement, legal and regulatory requirements in those jurisdictions from those applying in the UK, together with different practices for the separate identification of your investments. 20.6 Your assets may be pooled with those of one or more customers. This means that individual customer entitlements may not be identifiable by separate certificates, other physical documents of title or equivalent electronic record and in the event of an unreconcilable shortfall after the default of a custodian, customers may share in that shortfall pro-rata. 20.7 We will collect any dividends, interest, or other entitlements, in cash or in kind, to which you may be entitled and of which we are notified and will remit to you such dividends or interest as soon as possible after deduction of any Taxes payable or credit them to such account of yours as we may consider appropriate. 20.8 In respect of any investments held on your behalf by us or a third party appointed by us under or pursuant to the Customer Documents, if we are notified of any voting and/or any other rights or privileges (including without limitation conversion and subscription rights and rights or privileges arising in connection with takeovers, other offers or capital reorganistions) attaching to those investments may be exercised, we will notify you as soon as reasonably practicable of such rights and/or privileges. If you unambiguously inform us in writing within 14 days of such notice (or such shorter period as may be specified or appropriate) that you wish us to exercise the rights and/or privileges and we have sufficient cleared funds, we will do so but only on such terms as you advise in writing and which are reasonably acceptable to us. Page 8 Otherwise we will not exercise any such rights and/or privileges. Notwithstanding the absence of satisfactory instructions or sufficient funds, in the event that we are notified that subscription rights attach to any investments that we or such third party hold on your behalf we may, in our or its absolute discretion, dispose of such rights on your behalf in such manner as we think, or it thinks, fit. 20.9 If we are notified by any third party appointed by us under or pursuant to the Customer Documents, or by any company in which we or such third party hold investments on your behalf that such company intends to make calls upon those investments in respect of any monies whatsoever unpaid on them, we will notify you as soon as practicable of such calls. If you provide us with the relevant funds in sufficient time for us to do so, we will satisfy such calls on your behalf and on such terms as you advise in writing and which are reasonably practicable to us. Otherwise we shall take no action on your behalf and will have no liability whatsoever in respect of the consequences of a failure to satisfy the calls made. However, where the custodian is legally liable to meet such calls it may do so and you will reimburse us forthwith upon demand. 20.10 Subject to Clauses 19, 20.11 and 24 and the Rules we are not authorised to: (a) borrow money on your behalf against the security of your Securities; or (b) lend any documents of title or certificates evidencing title to any third party; or (c) otherwise use your documents of title or other documents evidencing title to investments belonging to you for our own account or for the account of another of our customers. In each case, unless we have first entered into a written agreement with you giving us such authorisation. 20.11(a) Without prejudice to Clause 19.5, you hereby authorise MSIL at any time or times to borrow, lend or otherwise use for its own purposes any Charged Securities without giving notice of such borrowing, lending or other use to you. MSIL may retain for its own account all fees, profits and other benefits received in connection with any such borrowing, loan or use. Upon such borrowing, lending or other use, such Charged Securities will become the absolute property of MSIL (or that of such transferee) free from the security created hereunder and from any equity, right, title or interest of yours and you will thereupon have a right against MSIL for the delivery of Securities of the same issuer, forming part of the same issue and of an identical type, nominal value, description and amount as such Charged Securities (provided that where there has been any corporate action or other events in relation to any such Charged Securities, we may determine what assets (which may consist of and include money or other property) are to be treated as equivalent for this purpose) ("EQUIVALENT SECURITIES"). 20.11(b) MSIL may deliver, or procure the delivery of, Equivalent Securities to you under Clause 20.11(a) by causing such Equivalent Securities to be transferred, appropriated or designated to your account(s) charged to it from which such Securities were held prior to such use or, if not possible to do so, to such other of your accounts charged to MSIL as MSIL shall determine. Such Securities shall upon such transfer, appropriation or designation become subject to all the provisions of the Customer Documents, including, without limitation, those of Clause 19 and this Clause 20.11. 20.11(c) Our obligation to return Equivalent Securities under this paragraph may, if we so elect, be included in any set-off of obligations of ours to you against any obligation of yours to us (whether under Clauses 24 or 28 below or otherwise), on the basis that there is for that purpose due from us to you an amount equal to the Default Market Value of such Equivalent Securities, and our obligation to return Equivalent Securities shall, if and to the extent so included, be extinguished accordingly. For this purpose - (i) the DEFAULT MARKET VALUE of such Equivalent Securities means: (A) if during the Default Valuation Period (as defined below) we have sold Securities forming part of the same issue and being of an identical type and description to those Securities and in substantially the same amount as those Securities, the net proceeds of sale (after deducting all reasonable costs, fees and expenses incurred in connection therewith) and (B) failing such sale during the Default Valuation Period, the market value of such Securities at the Default Valuation Time as determined by us in good faith; (ii) the DEFAULT VALUATION PERIOD means: (A) if the relevant set-off occurs on a day that is a dealing day in the most appropriate market for Securities of the relevant description (as determined by us), a period commencing on the opening of business on that day and ending at the close of business on the following dealing day; and Page 9 (B) in any other case, the close of business on the second dealing day in that market after the day on which the set-off occurs. (iii) the DEFAULT VALUATION TIME means the end of the Default Valuation Period. Where the amount of any Securities sold as mentioned in (i)(A) above is not identical to that of the Securities to be valued for the purposes of this definition, the Default Market Value of those Securities shall be ascertained by dividing the net proceeds of sale by the amount of the Securities sold so as to obtain a net unit price and multiplying that net unit price by the amount of the Securities to be valued. CHAPTER IV - MATERIAL INTERESTS 21.1 The relationship between you and us is as described in the Customer Documents. Neither that relationship nor the services we provide nor any other matter will give rise to any fiduciary or equitable duties on our part which would prevent or hinder us from doing business for or with you (whether acting as principal or agent), doing business with associates, connected customers, and other investors and generally acting as provided in the Customer Documents. We may give advice or make recommendations to you, enter into Transactions for or with you or act as your agent or provide any other service pursuant to Clause 2 notwithstanding that we may have a relationship, arrangement or interest that is material in relation to the Transaction, advice or recommendation concerned and/or the Asset underlying any Contract or Client Contract, including (but not limited to) the following circumstances where:- (a) we have acted, are acting or are seeking to act as a financial adviser or lending banker to the issuer (or any of its affiliated companies) of the Assets the subject of a Transaction or have advised or are advising any person in connection with a merger, acquisition or take-over by or for such issuer (or any of its affiliated companies); (b) we have sponsored or underwritten or otherwise participated in, or are sponsoring or underwriting or otherwise participating in the Assets the subject of a Transaction; (c) we have a holding, dealing, or market-making position or may otherwise be trading or dealing in the Assets the subject of a Transaction or in investments (including without limitation any futures or option Contracts) or assets of any kind underlying, derived from or otherwise directly or indirectly related to such investments; (d) we have received or are receiving payments or other benefits for giving business to the firm with which your order is placed; (e) we have been or are an associate of the issuer (or any of its affiliated companies) of the Assets the subject of a Transaction; (f) we are matching your transaction with that of any other client (including without limitation us, any Associated Firm, connected customer or other customer of us) either by acting on behalf of such person as well as on behalf of you ("agency cross") or by executing matching transactions at or about the same time with you and such persons ("back-to- back principal trade"). 21.2 No further disclosure to you is required of any relationship, arrangement or interest which falls within one of the circumstances referred to in Clause 21.1 above, and we will be entitled to retain any profit or benefit arising as if no such relationship, arrangement or interest existed. 21.3 We will not be obliged to disclose to you any matter, fact or thing, whether or not such disclosure would or might be a breach of any duty owed by us to any other person, and we shall not be obliged to disclose to you any matter, fact or thing which comes to the notice of any of our employees, officers or directors if the employee, officer or director who is dealing for or with you is unaware of such matter, fact or thing. 21.4 We may in our absolute discretion decline to carry out a Transaction for or with you or to give advice or make a recommendation to you where we may have an interest in respect thereof which will or may conflict with your interests. Page 10 CHAPTER V - POWERS AND EXCLUSIONS OF LIABILITY 22. EXCLUSION AND RESTRICTION OF LIABILITY 22.1 Nothing in the Customer Documents shall exclude or restrict any liability which we have under the Rules or the regulatory system established by the FSA, and which may not be excluded or restricted thereunder. 22.2 We shall not be liable to you in respect of any relevant Client Contract, any matching Contract or otherwise if and to the extent that the relevant Exchange, Clearing House and/or Broker has ceased for any reason (including netting-off our positions with it) to recognise the existence of any Contract or fails to perform or close out any Contract or defaults in respect of margin or collateral. This will not affect your obligations and liabilities hereunder in respect of Contracts, which you have instructed us to open, and which have not been closed out. 22.3 Neither we nor any of our employees, officers or directors will be liable for any loss resulting from any act or omission made under or in relation to or in connection with the Customer Documents, except where such loss results from any bad faith, wilful default, fraud or negligence of us or any of our employees, officers or directors. 22.4 Neither we nor our employees, officers or directors will be liable for any consequential or special damages howsoever arising. 22.5 We will not be liable for the solvency, acts or omissions of:- (i) any nominee, custodian or other third party with whom any Charged Securities (or other investments) are held pursuant to Clauses 19 and 20 above; or (ii) any bank with which we maintain any client bank account; or (iii) any other third party with whom we deal or transact business or who is appointed by us in good faith on your behalf, unless such nominee, custodian, bank or other third party is an Associated Firm, but we will make available to you, when and to the extent reasonably so requested, any rights that we may have against such person. 22.6 If any claim is made by or against us or any of our employees, officers or directors against or by any third party in connection with this Agreement, any Contract acquired or Transaction effected on your instructions or a corresponding Client Contract or arising out of any act or omission by us or our employees, officers or directors, you hereby agree to provide us or our employees, officers or directors with any assistance which you may be reasonably asked to give. 22.7 Neither we nor any of our directors, officers or employees will have any responsibility or liability whatsoever for: (a) any advice or opinion which may be given to you concerning the Customer Documents; or (b) any expense, loss or damage suffered by you as a result of (i) our carrying out your instructions, if we acted in accordance with such instructions or otherwise acted reasonably, or (ii) properly carrying out or failing to carry out any actions which we are permitted but not required to carry out under the Customer Documents. 23. INDEMNITY You will fully indemnify us, our Associated Firms and any of our or their employees, officers or directors (each an "Indemnified Person") against all costs, expenses, damages, liabilities and losses which any such Indemnified Person may suffer or incur directly or indirectly as a result of, or in connection with, or arising out of the Customer Documents or any Transaction effected on your instructions or arising out of any act or omission by such Indemnified Person or by any other person permitted under the Customer Documents, and against any claims which may be made against any such Indemnified Person in the performance of the powers or duties of any such Indemnified Person (including in any such case any cost of enforcing the same). The indemnity will not extend to any Indemnified Person if such costs, expenses, damages, liabilities and losses result primarily from the bad faith, wilful default, fraud or negligence of such Indemnified Person. 24. MORGAN STANLEY'S POWERS 24.1 If we have determined, in our absolute discretion, that you have not performed (or may not be able or willing in the future to perform) any of your obligations to us under or pursuant to the Customer Documents, we may (with prior notice only if reasonably practicable) take such steps as we consider necessary or desirable to comply with, perform, cancel or satisfy any of our obligations to the relevant Exchange, Clearing House or Broker in respect of any Contract or Contracts acquired on your instructions, or otherwise to protect our position, including closing out and/or performing any or all such Open Contracts. For such purpose, we may: Page 11 (a) buy or sell the Asset underlying any Open Contract in any manner including to or from ourselves or any Connected Company; (b) buy or sell futures or options contracts; (c) open new long or short positions in order to establish a spread or straddle; (d) borrow, buy or sell any currency; (e) apply any Margin; (f) cancel, terminate or otherwise liquidate any Transaction between you and us; and/or (g) set off any obligation to you against any of your obligations to us; in each case so that all amounts spent by us in connection with any such actions that are in excess of the amount held in the Margin Account for you shall be paid by you to us on demand. 24.2 On the exercise of our rights under Clause 24.1 above: (a) we are not obliged to deliver to you in respect of any corresponding Client Contract the underlying Asset or any money received or receivable on closing out until all of your liabilities to us are satisfied or discharged to our satisfaction, and all amounts you owe us are paid, and: (i) any such underlying Asset may be registered in our name or that of our nominee (which may be an Associated Firm), and we or such nominee may be the custodian of the documents of title or certificates evidencing title to such Asset; (ii) if such amounts are not paid and/or liabilities to us are not satisfied or discharged to our satisfaction, we may sell or realise the underlying Asset upon terms (including the consideration received therefor) as we in our absolute discretion think fit, without being responsible for any loss or diminution in price; any consideration received therefor shall be credited to the Margin Account; and (iii) any income in respect of such Asset paid to us, net of any Taxes payable by us (whether by withholding or otherwise) in respect of such income, shall be credited to the Margin Account; and (b) all amounts owing to us hereunder will become immediately payable. 24.3 We do not have to close out Contracts or take any other action in respect of Open Contracts acquired on your instruction. In particular (subject to Clause 24.1 above), no failure by you to pay Margin when demanded will require us to close out any relevant Contract to which such Margin is attributable. 24.4 We may convert any funds realised pursuant to this Clause 24 at such rate and into such currencies as we may reasonably consider appropriate at the relevant time. 25 CERTIFICATES CONCLUSIVE Our certificate that any of our rights under the Customer Documents have been exercisable, or as to any amount payable or due under the Customer Documents, will be conclusive and binding on you, absent manifest error. No purchaser, pledgee or transferee of Charged Securities will need to enquire whether any such power has become enforceable, or to establish the proper application of any money paid. 26. TIME OF THE ESSENCE Time shall be of the essence in relation to all matters arising under or pursuant to the Customer Documents in respect of Transactions or Client Contracts or otherwise in respect of your dealing in futures or options. 27. RETENTION OF TITLE Title to Securities purchased by you (whether upon exercise of an option Client Contract or otherwise) will pass only when you pay the amount due for such purchase. 28. LIEN AND SET-OFF As further security for all of your obligations hereunder (but subject to the Rules) we shall have the right to retain (and apply as set out below) all of your property which we or any of our Associated Firms hold for any purpose, including, but not limited to, property held in any other of your accounts with us or any of our Associated Firms, whether or not Page 12 we have made any advances in connection with such property. From time to time we may, without notice, transfer and re-transfer any money or other property between any such accounts. You shall execute such documents and take such other action as we shall reasonably request in order to perfect our rights with respect to any security referred to in this Clause 28. 29. FORCE MAJEURE We shall not be liable to you for the non-performance of any of our obligations under this Agreement due to any cause beyond our reasonable control, including without limitation any breakdown or failure of transmission or communication or computer facilities, postal or other strikes or similar industrial action, or the failure of any relevant Exchange, Clearing House or Broker to perform its obligations for any reason. 30. TAXES 30.1 All amounts which you must pay under the Customer Documents do not include any applicable Taxes. You must pay any Taxes to us at the same time as the amounts to which those Taxes relate. 30.2 You are fully responsible for paying all other Taxes due and the making of all claims in relation thereto whether for exemption from withholding taxes or otherwise, for filing any and all tax returns, and for providing any relevant tax authorities with all necessary information in relation to any investment business we carry on for or with you or any investments which we hold on your behalf. 30.3 We will use all reasonable endeavours to send you any tax documents which we receive relating to you or to any monies or investments we hold under the Customer Documents. 31. ADVICE 31.1 You rely on your own judgement when you give orders or instructions to us. 31.2 We do not provide any legal or tax advice. Accordingly, if you consider it necessary you should consult your own legal or tax advisers. Page 13 CHAPTER VI - AUTHORISATION 32. DUE AUTHORISATION 32.1 You represent, warrant and undertake to us that:- (a) in any investment business we carry on for or with you under this Agreement, you are and will be acting either as principal or as agent; (b) you have and will have full power and capacity and have taken all necessary corporate and other action, and in the case of a trustee of a particular trust you have and will have full power and capacity under the relevant trust deeds, to enter into and perform your obligations under this Agreement (including without limitation the powers and capacity to grant us the charge and any other security herein provided for) and to confer on us the rights and powers contained in or given pursuant to this Agreement. Without limitation: (i) your execution, delivery and performance of this Agreement will not violate or conflict with any Applicable Law or your constitution or any charge, trust deed, contract or other instrument to which you are a party or which is binding upon you or your assets; and (ii) the terms and conditions contained in this Agreement will be your legal, valid and binding obligations; (c) you are (or some other person for whom you are trustee or agent and from whom you hold and will at all times hold all requisite authorities is) and will at all times during the continuance of this Agreement be the sole beneficial owner of all Charged Securities. In each case such Charged Securities are and shall be fully paid and free from all mortgages, charges, liens and other encumbrances other than those which may arise in our favour. No other person has or will have any rights or interests therein and you are lawfully entitled to create in our favour the security evidenced or intended to be evidenced hereby; (d) when further Securities become Charged Securities or otherwise subject to the charge in Clause 19.2 above you shall be deemed to have made a further and separate representation and warranty in the terms of paragraph (c) above; (e) you and any person designated by you have and shall have, due authorisation to act in all respects in relation to this Agreement and each Transaction, Contract and Client Contract and, in relation thereto, you have obtained, shall obtain and shall maintain in effect all necessary authorisations, consents or approvals (including without limitation any required by any Regulatory Body) and shall comply with the terms of the same and with all Applicable Law, and shall provide us with copies or other evidence of such consents or approvals and such evidence of compliance with such law as we may reasonably require. 32.2 You agree that, in all investment business which we carry on for or with you where you are acting as agent, only you will be our customer and we shall have no responsibility to any principal of yours as our customer. 32.3 If you are acting as agent for, or on behalf of another in relation to any Contract and/or Client Contract carried out under this Agreement then: (a) you have and will have full power and capacity to enter into this Agreement and to perform all obligations pursuant hereto to be performed by your principal under this Agreement; (b) you are expressly authorised by your principal to instruct us in relation to such Contract and/or Client Contract in accordance with the terms and conditions of this Agreement; and (c) you will be, and you will procure that your principal will be, jointly and severally liable, each as if a principal, to us in respect of all obligations and liabilities to be performed by you pursuant to and in respect of any such Contract and/or Client Contract. 32.4 You agree to supply us with such financial information about yourself (or any immediate, intermediate or ultimate holding company) as we may reasonably request. Page 14 33. AUTHORISED INSTRUCTIONS 33.1 You may from time to time notify us in writing of the names of those persons who are authorised to give instructions on your behalf. Until we receive notice in writing to the contrary, we shall be entitled to assume that any of those persons have full and unrestricted power to give us instructions on your behalf. 33.2 We are entitled to rely and act without further enquiry on any instruction, notice, demand, request or information (by whatever means transmitted and whether or not in writing) which purports or appears to come and which we reasonably believe in good faith to come from you or from any person who is or appears to us to be a person designated in the attached Certificate (if any) or otherwise authorised by you for the purpose of the Customers Documents or from someone acting on your behalf, and we shall not be liable for any actions taken or omitted to be taken in good faith pursuant thereto nor shall we be under any obligation to confirm instructions before they are executed or the accuracy or completeness of any such information before it is acted or otherwise relied upon. 33.3 We are not under any obligation to execute or otherwise enter into any particular Transaction, or to accept and act in accordance with any order or instructions, nor shall we be obliged to give any reasons for declining to do so. 33.4 If we decline to carry out a Transaction we will promptly notify you. We will have no liability for any expense, loss or damage incurred by you by reason of any omission so to notify you, otherwise than as a result of our bad faith, wilful default or negligence; in no event will we have any liability for any consequential or special damage. CHAPTER VII - GENERAL 34. INFORMATION 34.1 You warrant, represent and undertake that: (a) you will notify us promptly in writing of any significant change in your financial position (including changes in assets, net assets or called-up share capital); and (b) in entering into this Agreement, we have not made and you are not relying upon any statements, representations, promises or undertakings whatsoever that are not contained in this Agreement; 34.2 You will: (a) provide us on request all information in your agent's possession or control of you or your agents as may be required to be filed or disclosed pursuant to Applicable Law, in each case regarding us, you, the Customer Documents or any Contract, Client Contract; (b) file (within any applicable time periods) such reports, letters and other communications as may be required from time to time by any Regulatory Body relating to you or us, you, the Customer Documents, or any Contract, Client Contract; and (c) send a copy of all such reports referred to in paragraph (b) above to us promptly upon such filing, and we may send a copy of the same to any relevant Exchange, Clearing House member or Broker. 35. CONFIRMATION AND STATEMENTS As soon as practicable after we have carried out a Transaction we shall confirm details of that Transaction to you. We will provide to you at agreed intervals a statement of your overall trading (and Margin) positions with us at the then available current market price. 36. TELEPHONE RECORDING We may use voice record orders, instructions or conversations we receive by telephone. Our voice records shall be prima facie evidence of the order, instructions or conversations recorded, and you agree that such records shall be admissible as such evidence in any Proceedings (as defined in Clause 43.2). 37. NOTICES 37.1 Any instructions or requests you give, or demands or confirmations by us may be given in writing or, where permitted under the Rules, orally. Any notice in writing (including without limitation any contract note, confirmation or demand) may be given by posting or delivering it or by sending it by telex, facsimile transmission or any other electronic transmission. 37.2 Any notice or demand given by post will be sent first class, or where appropriate, by air mail and will, subject to Clauses 37.3 and 37.4 below, be deemed given seven business days after posting and any notice given by delivery or by telex, facsimile transmission or any other electronic transmission will be deemed given upon delivery or transmission (as the case may be), and in proving service of notice it shall be sufficient to prove, in the case of delivery by post, that Page 15 the letter was correctly addressed and was posted first class or, where appropriate, air mail or, in the case of delivery otherwise than by post, that it was delivered to the correct address or, in the case of transmission by facsimile or telex, that it was transmitted to the correct number and (in the case of telex) received the proper answer back. 37.3 Any contract note, confirmation or account statement which we give in writing shall be deemed correct, conclusive and binding on you if not objected to in writing within the earlier of five business days of despatch by us or one business day of your receipt thereof. 37.4 Any statement produced may be delivered by post, or by sending it by telex, facsimile or other electronic transmission. Where you are ordinarily resident outside of the UK, we may retain statements relating to investments and collateral held by a custodian. 37.5 Communications from you under Clause 33.1, 33.2 and 40.1 and any objection pursuant to Clauses 37.3 and 39.2 shall be deemed received only if actually delivered. 38. CORRECT ADDRESSES AND NUMBERS Our address for serving notices is shown at the front of this document, and our facsimile and telex numbers are: Fax No: 0171 425 8990/0171 513 8990 Telex No: 8812564 MORSTAN We may change any of these details by written notice to you. Unless you tell us otherwise we will assume that your correct address and facsimile and telex numbers are those shown on any communication we receive which we reasonably believe to come from you. 39. ENTIRE AGREEMENT AND AMENDMENTS 39.1 This Agreement, together with all other Customer Documents, represent the entire terms on which we will undertake for or with your investment business in Exchange-traded futures and options contracts which is regulated by SFA. Any alteration to the Customer Documents must be agreed by us in writing. 39.2 We may amend or supplement our arrangements with you by sending you Further Schedules or a revised Agreement or by written agreement with you. Any amendment or supplement will, unless we have received your written objection, take effect twenty-one days after despatch to you or on such later date as we may specify, and will apply in respect of any commitment or transaction entered into by us after that date. Any amendment or supplement that relates to or results from a change of Applicable Law may take effect immediately or otherwise as we may specify. 40. TERMINATION 40.1 Either party can terminate this Agreement without penalty by giving notice in writing, which will take effect seven days after the notice is given or after any other period specified in the notice. 40.2 Termination of this Agreement will not affect the rights or liabilities of either party in respect of Contracts and any corresponding Client Contracts for which you have already given an instruction which we have accepted, or in respect of which there is an outstanding liability with us. Any termination will be without prejudice to our rights to all Margin and amounts in the Margin Account. The Customer Documents will apply to these liabilities until all Contracts have been closed out, settled or delivery effected and all liabilities discharged. 40.3 Termination of this Agreement will not affect any provision of the Customer Documents which is intended to survive termination. 41. ASSIGNMENT AND TRANSFER 41.1 The Customer Documents shall be binding upon, and inure to the benefit of, MSIL and its successors and assigns. 41.2 MSIL may at any time cause all or any part of its rights, benefits and/or obligations under the Customer Documents to be novated to any subsidiary or holding company (as defined in section 736 of the Companies Act 1985) of MSIL or a subsidiary of any such holding company or any company otherwise affiliated with MSIL (any such company being a "Connected Company") by delivering to you a written substitution notice. Upon delivery of a substitution notice to you: a) to the extent that in the substitution notice MSIL seeks to cause its rights and/or its obligations hereunder to be novated, you and MSIL shall be released from further obligations to each other hereunder and their respective rights against each other shall be cancelled; b) you and the Connected Company shall acquire the same rights and assume the same obligations between themselves as they would have acquired or assumed by it as a result of such novation. Page 16 41.3 You may not assign any of your rights under the Customer Documents, any Contract or Client Contact without our prior written consent. Any purported assignment of your rights will be invalid. 42. MISCELLANEOUS 42.1 If any term or part of the Customer Documents is void, voidable or unenforceable, the rest of the Customer Documents will not be affected. 42.2 Our rights, remedies, powers and privileges in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. Our failure to exercise, or delay in exercising, any of our rights, remedies, powers or privileges will not operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof. 43. GOVERNING LAW 43.1 The Customer Documents and all Transactions thereunder shall be governed by and construed in accordance with English Law. 43.2 Any suit action, claim or proceeding (together in this Clause referred to as "Proceedings") arising out of or in connection with the Customer Documents or any Transaction thereunder may be brought in the English courts. Any objection that you or we may have now or in the future to the laying of the venue of any Proceedings in any English court, and any claim that any Proceedings have been brought in an inconvenient forum, is waived. 43.3 If you are entitled in any jurisdiction to claim immunity for yourself or for your property or assets from service of process, jurisdiction, suit, judgement, execution, attachment (whether before judgement, in aid of execution or otherwise) or legal process in respect of your obligations under this Agreement, or to the extent that in any jurisdiction there may be attributed to you or your property or assets such immunity (whether or not claimed), you waive such immunity to the fullest extent under the laws of such jurisdiction. 43.4 You irrevocably and generally consent in respect of any legal action or Proceedings arising out of or in connection with the Customer Documents or any Transaction to the giving of any relief or the issue of any process in connection with such action or Proceedings, including, without limitation, the making, enforcement or execution against any property, asset, or revenues whatsoever (irrespective of their use or intended use) of any order or judgement which may be made or given in such action or Proceedings. IN WITNESS WHEREOF, this Agreement has been entered into on the date written in the Customer Signature pages below. Signed on behalf of MORGAN STANLEY & CO. INTERNATIONAL LIMITED -and- MORGAN STANLEY SECURITIES LIMITED By: /s/ R S Rosenthal ----------------------- Name: R S Rosenthal Title: Company Secretary Page 17 PART TWO MASTER NETTING AGREEMENT THIS MASTER NETTING AGREEMENT is made as of the date specified on the first customer signature page BETWEEN (A) You, as the client named on the customer signature page; and (B) MORGAN STANLEY & CO. INTERNATIONAL LIMITED ("MSIL") AND/OR MORGAN STANLEY SECURITIES LIMITED ("MSSL") BOTH OF 25 CABOT SQUARE, CANARY WHARF, LONDON E14 4QA . MSIL IS REGULATED BY SFA, AND MSSL IS REGULATED BY SFA AND A MEMBER OF THE LONDON STOCK EXCHANGE. IT IS HEREBY AGREED AS FOLLOWS: 1. SCOPE OF THIS AGREEMENT 1.1 Unless otherwise agreed in writing by the Parties in Annex 1 or otherwise and subject to the next sentence, these terms and the particular terms agreed by the Parties govern each Transaction entered into or outstanding between any two Designated Offices of the Parties on or after the date of execution of these terms. In the case of Transactions within paragraph (i), (ii), (iii) or (iv) of the definition of "Transaction", these terms govern only those Transactions where the exchange mentioned in such definition is a Specified Exchange. 1.2 These terms, the particular terms of, and applicable to, each and every Transaction governed by these terms, the Schedules to these terms and all amendments to any of such items shall together constitute a single agreement between the Parties. The Parties acknowledge that all Transactions governed by these terms, which are entered into on or after the date of execution of these terms, are entered into in reliance upon the fact that all such items constitute a single agreement between the Parties. 2. SETTLEMENT AND EXCHANGE OF CLEARING ORGANISATION RULES 2.1 Unless a Liquidation Date has occurred or has been effectively set, a Party shall not be obliged to make any payment or delivery scheduled to be made by that Party under a Transaction governed by these terms for so long as an Event of Default or Potential Event of Default with respect to the other Party has occurred and is continuing. 2.2 Unless otherwise agreed in writing by the Parties, if the Parties enter into any Transaction governed by these terms to close out any existing Transaction between the Parties then their obligations under such Transactions shall automatically and immediately be terminated upon entering into the second Transaction, except for any settlement payment due from one Party to the other in respect of such closed-out Transactions. 2.3 These terms shall not be applicable to any Transaction to the extent that action which conflicts with or overrides the provisions of this agreement has been started in relation to that Transaction by a relevant exchange or clearing organisation under applicable rules or laws and is continuing. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS 3.1 Each Party represents and warrants to the other Party as of the date of execution of these terms and, in the case of the representation and warranty in (v) of the Clause 3.1 relating to the entering into of Transactions, as of the date of entering into each Transaction governed by these terms that: (i) it has authority to enter into this agreement; (ii) the person entering into the agreement on its behalf have been duly authorised to do so: (iii) this agreement and the obligations created under this agreement are binding upon it and enforceable against it in accordance with their terms (subject to applicable principles of equity) and do not and will not violate the terms of any agreements to which such Party is bound; (iv) no Event of Default or Potential Event of Default has occurred and is continuing with respect to it; and (v) it acts as principal and sole beneficial owner (and not as trustee) in entering into these terms and each and every Transaction governed by these terms. 3.2 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 authorisations, approvals, licences and consents required to enable it lawfully to perform its obligations under this agreement; and (ii) it will promptly notify the other Party of the Page 18 occurrence of any Event of Default or Potential Event of Default with respect to itself or any credit Support Provider in relation to it. 4 TERMINATION AND LIQUIDATION 4.1 If, at any time: (i) a Party fails to make any payment when due under or to make or take delivery of any property when due under, or to observe or perform any other provision of, this agreement (including any Transaction governed by these terms) and such failure continues for two business days after notice of non-performance has been given by the other Party to the defaulting Party; (ii) a Party commences a voluntary case or other procedure seeking or proposing liquidation, reorganisation, an arrangement or composition, a freeze or moratorium, or other similar relief with respect to itself or to its debts under any bankruptcy, insolvency, regulatory, supervisory or similar law (including any corporate or other law with potential application to an insolvent Party), or seeking the appointment of a trustee, receiver, liquidator, conservator, administrator, custodian, examiner or other similar official (each a "Custodian") of it or any part of its assets; or takes any corporate action to authorise any of the foregoing; and, in the case of a reorganisation, arrangement or composition, the other Party does not consent to the proposals; (iii) an involuntary case or other procedure is commenced against a Party seeking or proposing liquidation, reorganisation, an arrangement or composition, a freeze or moratorium, or other similar relief with respect to it or its debts under any bankruptcy, insolvency, regulatory, supervisory or similar law (including any corporate or other law with potential application to an insolvent Party) or seeking the appointment of a Custodian of it or any part of its assets and such involuntary case or other procedure either (a) has not been dismissed within five days of its institution or presentation or (b) has been dismissed within such period but solely on the grounds of an insufficiency of assets to cover the costs of such case or other procedure; (iv) a Party dies, become of unsound mind, is unable to pay its debts as they fall due or is bankrupt or insolvent, as defined under any bankruptcy or insolvency law applicable to such Party; or indebtedness of a Party is not paid on the due date therefor or becomes, or becomes capable at any time of being declared, due and payable under agreements or instruments evidencing such indebtedness before it would otherwise have been due and payable, or proceedings are commenced for any execution, any attachment or garnishment, or any distress against, or an encumbrancer takes possession of, the whole or any part of the property, undertaking or assets (tangible and intangible) of a Party; (v) a Party or any Credit Support Provider in relation to a Party (or any Custodian acting on behalf of a Party or any Credit Support Provider in relation to a Party) disaffirms, disclaims or repudiates any obligation under this agreement (including any Transaction governed by these terms) or any Credit Support Document; (vi) any representation or warranty made or deemed made by a Party pursuant to this agreement or pursuant to any Credit Support Document proves to have been false or misleading in any material respect as at the time it was made or given; (vii) (a) any Credit Support Provider in relation to a Party or the relevant 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; (b) any Credit Support Document relating to a Party expires or ceases to be in full force and effect prior to the satisfaction of all obligations of such Party under this agreement (including any Transaction governed by these terms), unless the other Party has agreed in writing that this shall not be an Event of Default; (c) any representation or warranty made or deemed made by any Credit Support Provider in relation to a Party pursuant to any Credit Support Document proves to have been false or misleading in any material respect as at the time it was made or given or deemed made or given; or (d) any event referred to in (ii) to (iv) or (viii) of this Clause 4.1 occurs in respect of any Credit Support Provider in relation to a Party; (viii)a Party is dissolved, or in respect of a Party whose existence is dependent upon a formal registration, such registration is removed or ends, or any procedure is commenced seeking or proposing a Party's dissolution or the removal or ending of such a registration of a Party; or (ix) any event of default (however described) occurs under any terms of business in place between the Parties or any other event specified for these purposes in Annex 1 or otherwise occurs, then the other Party (the "Non-Defaulting Party") may exercise its rights under Clause 4.2, except that, if so agreed in writing by the Parties (whether by specifying as such in Annex 1 hereto or otherwise), in the case of the occurrence of any Event of Default specified in paragraph (ii) or (iii) above the provisions of Clause 4.3 shall apply. Page 19 4.2 Subject to Clause 4.3, at any time following the occurrence of an Event of Default, the Non-Defaulting Party may, by notice to the Defaulting Party, specify a Liquidation Date for the termination and liquidation of Transactions in accordance with the provisions of Clause 4.4. 4.3 If the Parties have so agreed, the date of the occurrence of any Event of Default specified in paragraph (ii) or (iii) of Clause 4.1 shall automatically constitute a Liquidation Date, without the need for any notice by either Party and to the intent that the provisions of Clause 4.4 shall then apply. 4.4 Upon the occurrence of a Liquidation Date: (i) neither Party shall be obliged to make any further payments or deliveries under any Transactions governed by these terms which would, but for this Clause, have fallen due for performance on or after the Liquidation Date and such obligations shall be satisfied by settlement (whether by payment, set-off or otherwise) of the Liquidation Amount; (ii) the Non-Defaulting Party shall (on, or as soon as reasonably practicable after, the Liquidation Date) determine (discounting if appropriate), in respect of each Transaction governed by these terms, its total cost, loss or, as the case may be, gain, in each case expressed in the Non-Defaulting Party's Base Currency (and, if appropriate, including any loss of bargain, cost of funding or, without duplication, cost, loss or, as the case may be, gain as a result of the termination, liquidation, obtaining, performing or re-establishing of any hedge or related trading position), as a result of the termination, pursuant to this agreement, of each payment or delivery which would otherwise have been required to be made under such Transaction (assuming satisfaction of each applicable condition precedent and having due regard to, if appropriate, such market quotations published on, or official settlement prices set by, a relevant exchange or clearing organisation as may be available on, or immediately preceding, the date of calculation); and (iii) the Non-Defaulting Party shall treat each cost or loss to it, determined as above, as a positive amount and each gain by it, so determined, as a negative amount and aggregate all of such amounts to produce a single, net positive or negative amount, denominated in the Non-Defaulting Party's Base Currency (the "Liquidation Amount"). 4.5 If the Liquidation Amount determined pursuant to Clause 4.4 is a positive amount, the Defaulting Party shall pay it to the Non-Defaulting Party and if it is a negative amount, the Non-Defaulting Party shall pay it to the Defaulting Party. The Non-Defaulting Party shall notify the Defaulting Party of the Liquidation Amount, and by which Party it is payable, immediately after the calculation of such amount. 4.6 Unless the Parties specify otherwise in Annex 1 or otherwise, where termination and liquidation occurs in accordance with Clause 4.4, the Non-Defaulting Party shall also be entitled, at its discretion, to apply the provisions of Clause 4.4 to any other Transactions entered into between the Parties which are then outstanding, as if each such Transaction were a Transaction governed by these terms. 4.7 The amount payable by one Party to the other Party pursuant to the provisions of Clause 4.5, or any applicable laws or regulations, shall be paid in the Non-Defaulting Party's Base Currency by the close of business on the business day following the completion of the termination and liquidation under Clause 4.4, or any laws or regulations having a similar effect, (converted as required by applicable law into any other currency, any costs of such conversion to be borne by, and (if applicable) deducted from any payment to, the Defaulting Party). Any such amount which is not paid on the due date therefor shall bear interest, at the average rate at which overnight deposits in the currency of such payment are offered by major banks in the London interbank market as of 11.00 a.m. (London time) (or, if no such rate is available, at such reasonable rate as the Non-Defaulting Party may select) plus 1% per annum, for each day for which such amount remains unpaid. 4.8 For the purpose of any calculation hereunder, the Non-Defaulting Party may convert amounts denominated in any other currency into the Non-Defaulting Party's Base Currency at such rate prevailing at the time of the calculation as it shall reasonably select. 4.9 The Non-Defaulting Party's rights under this Clause 4 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). 5 SET-OFF Without prejudice to any other right or remedy which it may have, either Party may, on or after the occurrence of a Liquidation Date and the determination of the Liquidation Amount, set off any amount owing by it (whether actual or contingent, present or future and including, if applicable and with out limitation, the Liquidation Amount and any Page 20 amount due and payable on or before the Liquidation Date but remaining unpaid) to the other Party against any amount owing by such other Party (whether actual or contingent, present or future and including, if applicable and without limitation, the Liquidation Amount and any amount due and payable before the Liquidation Date but remaining unpaid) to the first Party. 6 CURRENCY INDEMNITY If a Party (the first Party) receives or recovers 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 payable, whether pursuant to a judgement of any court or otherwise, the second Party shall indemnify and hold harmless the first Party from and against any cost (including costs of conversion) and loss suffered by the first Party as a result of receiving such amount in a currency other than the currency in which it was due. 7. ASSIGNMENTS AND TRANSFERS Neither Party may assign, charge or otherwise transfer or purport to assign, charge or otherwise transfer its rights or obligations under this agreement (including the Transactions governed by these terms) or any interest therein without the prior written consent of the other Party, and any purported assignment, charge or transfer in violation of this Clause shall be void. 8. NOTICES Unless otherwise agreed, all notices, instructions and other communications to be given to a Party under this agreement shall be given to the address, telex (if confirmed by the appropriate answerback) or facsimile (confirmed if requested) number and to the individual or department specified in Annex 1, the Customer Signature page or by notice in writing by such Party. Unless otherwise specified, any notice, instruction or other communication given in accordance with this Clause shall be effective upon receipt. 9. TERMINATION, WAIVER AND PARTIAL INVALIDITY 9.1 Either of the Parties hereto may terminate this agreement at any time by seven days' prior notice to the other Party and termination shall be effective at the end of such seventh day; provided, however, that any such termination shall not affect any then outstanding Transactions governed by these terms, and the provisions of this agreement shall continue to apply until all the obligations of each Party to the other under this agreement (including the Transactions governed by these terms) have been fully performed. 9.2 A Party may waive any right, power or privilege under this agreement only by (and to the extent of) an express statement in writing. 9.3 If, at any time, any provision of these terms is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of these terms nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 10. TIME OF ESSENCE Time shall be of the essence in this agreement. 11. PAYMENTS Every payment to be made by a Party under these terms shall be made in same day (or immediately available) and freely transferable funds to the bank account designated by the other Party for such purpose. 12. GOVERNING LAW AND JURISDICTION Unless the Parties specify otherwise in Annex 1 or otherwise: 12.1 These terms shall be governed by, and construed in accordance with, the laws of England and Wales. 12.2 With respect to any Proceedings, each Party irrevocably (i) agrees that the courts of England shall have exclusive jurisdiction to determine any Proceedings and irrevocably submits to the jurisdiction of the English courts and (ii) waives any objection which it may have at any time to the bringing of any Proceedings in any such court and agrees not to claim that such Proceedings have been brought in an inconvenient forum or that such court does not have jurisdiction over such Party. Page 21 12.3 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 ground 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 of after judgement) and (v) execution or enforcement of any judgement 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. Each Party consents generally in respect of any Proceedings to the giving of any relief or the issue of any process in connection with such Proceedings, including, without limitation, the making, enforcement or execution against any property whatsoever of any order or judgement which may be made or given in such Proceedings. 13 INTERPRETATION 13.1 In these terms: "Base Currency" means, as to a Party, the currency specified as such in Annex 1 or agreed as such in relation to it in writing between the Parties or, failing any such specification or agreement, the lawful currency of the United Kingdom; "Credit Support Document" means, as to a Party (the first Party), a guarantee, 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 favour of the other Party supporting any obligations of the first Party under this agreement; "Credit Support Provider" has the meaning given to it in the definition of Credit Support Document; "Custodian" has the meaning given to it in Clause 4.1; "Defaulting Party" means the Party in respect of which, or related to a Credit Support Provider in respect of which, an Event of Default has occurred; "Designated Office(s)" means, as to a Party, the office identified with its name on page 1 of these terms and any other office(s) specified in Annex 1 or otherwise agreed by the Parties to be its Designated Office(s) for the purpose of this agreement; "Liquidation Date" means a day on which, pursuant to the provisions of Clause 4, the Non-Defaulting Party commences the termination and liquidation of Transactions or such a termination and liquidation commences automatically; "Potential Event of Default" means any event which may become (with the passage of time, the giving of notice, the making of any determination hereunder or any combination thereof) an Event of Default; "Proceedings" means any suit, action, or other proceedings relating to this agreement; "Specified Exchanges" means the exchanges specified in Annex 2 and any other exchanges agreed by the Parties to be Specified Exchanges for the purpose of Clause 1.1; and "Specified Exchange" means any of them; "Transaction" means: (i) a contract made on an exchange or pursuant to the rules of an exchange; (ii) a contract subject to the rules of an exchange; or (iii) a contract which would (but for its term to maturity only) be a contract made on, or subject to the rules of, an exchange and which, at the appropriate time, is to be submitted for clearing as a contract made on, or subject to the rules of, an exchange, in any of cases (i), (ii), (iii) being a future, option, contract for differences, spot or forward contract of any kind in relation to any commodity, metal, financial instrument (including any security), currency, interest rate, index or any combination thereof; (iv) a transaction which is back-to-back with any transaction within paragraph (i), (ii) or (iii) of this definition; or (v) any other transaction which the Parties agree shall be a Transaction. Page 22 13.2 In these terms, "Event of Default" means any of the events listed in Clause 4.1; "Liquidation Amount" has the meaning ascribed to it in Clause 4.4; and "Non-Defaulting Party" has the meaning ascribed to it in Clause 4.1. 13.3 Any reference in these terms to: a "business day" shall be construed as a reference to a day (other than a Saturday or Sunday) on which: (i) in relation to a date for the payment of any sum denomination in (a) any currency (other than ecu or euro), banks generally are open for business in the principal financial centre of the country of such currency; (b) ecu, the Ecu Clearing and Settlement System operated by the Ecu Banking Association, (or, if such clearing system ceases to be operative, any other clearing or settlement system determined by the Parties) is open for business; or (c) euros, settlement of payments denominated in euros is generally possible in London or any other financial centre in Europe selected by the Parties; and (ii) in relation to a date for the delivery of any property, property of such type is capable of being delivered in satisfaction of obligations incurred in the market in which the obligation to deliver such first property was incurred; a "Clause" or "Annex" shall be construed as a reference to, respectively, a clause or Annex of these terms, unless the context requires otherwise; a "currency" shall be construed so as to include any unit of account; "indebtedness" shall be construed so as to include any obligation (whether present or future, actual or contingent, as principal or surety or otherwise) for the payment or repayment of money; "Parties" shall be construed as a reference to the parties to this agreement and shall include their successors and permitted assigns; and "Party" shall be construed as a reference to which of the Parties is appropriate in the context in which such expression may be used; a Party to which a Credit Support Provider relates shall be construed as a reference to the Party whose obligations under this agreement are supported by that Credit Support Provider; and these "terms" or this "agreement" shall be construed as including the Annexes and as a reference to these terms or this agreement as the same may be amended, varied, novated or supplemented from time to time. Page 23 ANNEX 1 TO MASTER NETTING AGREEMENT 1. SCOPE OF AGREEMENT (a) Each of the following shall be a Transaction for the purpose of paragraph (v) of the definition of "Transaction" in Clause 13.1: Not applicable. (b) For the purposes of Clause 1.1, these terms shall not apply to [all] [the following] Transactions outstanding between the Parties on the date of execution of these terms: Not applicable. (c) In the event of a discrepancy between these terms and the Customer Documents for Exchange-traded Derivatives, these terms will govern in relation to close out netting of Transactions but without prejudice to any other rights that Morgan Stanley may have under the Customer Documents for Exchange-traded Derivatives. 2. DESIGNATED OFFICES Each of the following shall be a Designated Office: The offices specified in Section 7 "Notices" below or in the Customer Signature page. 3. REPRESENTATIONS, WARRANTS AND COVENANTS Clause 3.1 is hereby amended by deleting the words "in the case of the representation and warranty in (v) of the Clause 3.1 relating to the entering into of Transactions,". 4. ADDITIONAL EVENT(S) OF DEFAULT Each of the following shall be an Event of Default for the purpose of paragraph (ix) of Clause 4.1: Not Applicable 5. AUTOMATIC TERMINATION Upon the occurrence of any Event of Default specified in paragraph (ii) or (iii) of Clause 4.1, the provisions of Clause 4.3 shall apply. 6. TERMINATION OF OTHER TRANSACTIONS The provisions of Clause 4.6 shall not apply. 7. NOTICES MORGAN STANLEY Name : Morgan Stanley & Co. International Limited Address : 25 Cabot Square, Canary Wharf, London E14 4QA Telephone Numbers : 44-171-425-8000 Telex number : 8812564 Facsimile number : 44-171-425-4976 Name of individual or department to whom notices are to be sent: Compliance 8. NO RELIANCE In connection with these terms and the Customer Documents for Exchange-Traded Derivatives, each Transaction and any other documentation relating to these terms, both Parties represent and acknowledge that (i) it is entering into each Transaction with a full understanding of all material terms and risks thereof, and it is capable of assuming those risks; (ii) it has made its investment and trading decisions (including decisions regarding the suitability of any transaction) based upon its own judgement and upon any advice from such advisors as it has deemed necessary, and not in reliance upon any view expressed by the other Party; (iii) the other Party is not acting as a fiduciary or an advisor for it, and all Page 24 decisions have been the results of arm's length negotiations between the Parties; and (iv) the other Party has not given to it any assurance or guarantee as to the expected performance or result of any Transaction. 9. GOVERNING LAW AND JURISDICTION The following provisions shall not apply in place of the provisions of Clause 12: 12.1 These terms shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to conflict of law provisions. 12.2 With respect to any Proceedings, each Party irrevocably (i) 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 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 and agrees not to claim that such Proceedings have been brought in any inconvenient forum or that such court does not have jurisdiction over such Party. 12.3 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 us), all immunity of 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 judgement) and (v) execution or enforcement of any judgement 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. Each Party consents generally in respect of any Proceedings to the giving of any relief or the issue of any process in connection with such Proceedings, including, without limitation, the making enforcement or execution against any property whatsoever of any order or judgement which may be made or given in such Proceedings. 12.4 Each Party hereby irrevocably waives any and all right to trial by jury in any Proceedings. 10. BASE CURRENCY: US Dollars 11. SELECTED FINANCIAL CENTRES FOR EURO SETTLEMENTS: Not Applicable 12. FDICIA REPRESENTATIONS The following provisions shall not apply to this agreement. Each Party represents and warrants to the other Party that it is a financial institution under the provisions of Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), and the Parties agree that this agreement shall be a netting contract, as defined in FDICIA, and each receipt or payment or delivery obligation hereunder shall be a covered contractual payment entitlement or covered contractual payment obligations, respectively, as defined in and subject to FDICIA. Page 25 ANNEX 2 TO MASTER NETTING AGREEMENT SPECIFIC EXCHANGES The following exchanges are Specified Exchanges for the purposes of Clause 1.1; Any Recognised Exchange, Recognised Investment Exchange, Designated Investment Exchange or Approved Exchange as defined by the Financial Services Authority or the Securities and Futures Authority and as amended from time to time. IN WITNESS WHEREOF, this Agreement has been entered into on the date written in the Customer Signature pages. Signed on behalf of MORGAN STANLEY & CO. INTERNATIONAL LIMITED -and- MORGAN STANLEY SECURITIES LIMITED By: /s/ R S Rosenthal --------------------- Name: R S Rosenthal Title: Company Secretary Page 26 PART THREE SCHEDULE 1 SELECTED ASSOCIATED FIRMS OF MORGAN STANLEY & CO. INTERNATIONAL LIMITED AND MORGAN STANLEY SECURITIES LIMITED Morgan Stanley Group Inc. Morgan Stanley & Co. Incorporated Morgan Stanley Market Products Inc. Morgan Stanley Capital Services Inc. Morgan Stanley Capital Group Inc. Morgan Stanley & Co. International Limited Incorporated Morgan Stanley Japan Limited Morgan Stanley Bank AG* Morgan Stanley SA Morgan Stanley Asia Limited Morgan Stanley & Co. Limited Morgan Stanley & Co. International Holdings Limited Morstan Nominees Limited Morgan Stanley Services (UK) Limited Morgan Stanley Canada Limited Morgan Stanley Asset Management Singapore Limited Morgan Stanley Asset Management Limited Morgan Stanley Asset Management Inc. MS Securities Services Inc. Morgan Stanley SpA Morgan Stanley Capital Group Singapore Pte Limited Morgan Stanley Hong Kong Securities Limited Morgan Stanley Hong Kong Nominees Limited Morgan Stanley Futures Hong Kong Limited Morgan Stanley Futures Singapore Limited Morgan Stanley Australia Limited Morgan Stanley Global Securities Services Incorporated Bank Morgan Stanley AG* * Approved Banks Page 27 PART THREE SCHEDULE 2 ADDITIONAL PROVISIONS FOR LIFFE The provisions of this Schedule 2 apply where the Contract is a futures or options contract subject to the Rules of LIFFE. 1. GENERAL PROVISIONS 1.1 Morgan Stanley & Co. International Limited is an individual clearing member of LIFFE. Morgan Stanley Securities Limited is a non-clearing member of LIFFE. 1.2 You accept that in relation to LIFFE: (a) any allocation pursuant to Clause 12 of this Agreement shall be made as follows. We shall allocate as between clients, first, on the basis of a first in first out (FIFO) basis and, secondly, pro rata in respect of Open Contracts for which there is a corresponding Client Contract; (b) any dispute arising from or relating to this Agreement, insofar as it relates to Contracts or Clients Contracts subject to the rules of LIFFE, and any dispute arising from or relating to any such Contract or Client Contract as aforesaid and made hereunder shall, unless resolved between us, be referred to the arbitration rules of LIFFE, or to such other organisation as LIFFE may direct before either of us resorts to the jurisdiction of the courts (other than to obtain an injunction or an order for security for a claim). Clause 43 of this Agreement shall be subject to the agreement contained in this sub-paragraph; and (c) subject to the arbitration clause in sub-paragraph (b) above, disputes arising from this Agreement or from Contracts or Client Contracts made under or pursuant to this Agreement shall (for our benefit) be subject to the exclusive jurisdiction of the English courts to which both parties hereby irrevocably submit. (d) in both our interests, LIFFE may from time to time sanction the making of contracts by us outside the pit or outside its electronic trading system in order to satisfy your order, where there has been an error in the execution of your order. Where a better price (an improvement) can be obtained, we will seek to secure and offer that improvement to you. However, you should note that where, in response to your order, we have bought or sold in accordance with the instruction in your order to buy or, as the case may be, to sell but have traded the wrong delivery/expiry month or wrong exercise price of the relevant contract, then we may in accordance with LIFFE's Rules offset any loss arising from that trade against any improvement achieved for you in the course of correctly satisfying your order, thus offering you only the net improvements, if any. 2. EXCLUSION OF LIABILITY 2.1 As a member of LIFFE and pursuant to the Rules of LIFFE, we are required to include a provision dealing with exclusion of liability in our agreement with you. The following provisions and paragraph 3.1 shall apply without prejudice to the generality of Clauses 22, 23, 27 and 28 of this Agreement with you. 2.2 LIFFE Administration and Management ("the Exchange") is obliged under the FSA1986 to ensure that business conducted by means of its market facilities is conducted in an orderly manner and so as to afford proper protection to investors. We and the Exchange wish to draw to your attention that, inter alia, business on the market may from time to time be suspended or restricted, or the market may from time to time be closed for a temporary period or for such longer period as may be determined in accordance with LIFFE's rules on the occurrence of one or more events which require such action to be taken in the interests of, inter alia, maintaining a fair and orderly market. Any such action may result in our being unable, and through us you and your clients (if any) may from time to time be prevented from or hindered in entering into contracts in accordance with LIFFE's rules as a result of a failure of some or all market facilities. We and the Exchange wish to draw the following exclusion of liability to your attention and to the attention of your clients (if any). Unless otherwise expressly provided in LIFFE's rules or in any other agreement to which LIFFE is party, we and LIFFE shall not be liable to you or any client of yours for loss (including any indirect or consequential loss including, without limitation, loss of profit), damage, injury or delay, whether direct or indirect, arising from any of the circumstances or occurrences referred to above, or from any act or omission of the Exchange, its officers, employees, agents or representatives, under LIFFE's rules or pursuant to the Exchange's obligations under statute, or from any breach of contract by or any negligence howsoever arising of the Exchange, its officers, employees, agents or representatives. Page 28 2.3 Paragraphs 2.1 and 2.2 of this Schedule 2 shall be construed as applying to, and having the same effect in relation to, business which we transact, or which we would transact, but for one of the events referred to in this Paragraph occurring, on other futures and options markets. 3. LINKED CONTRACTS DEFINITIONS "LCH" means The London Clearing House Limited; "LIFFE" means LIFFE Administration and Management; "LIFFE Contract" means an Exchange Contract to which a Linked Participating Exchange Contract is linked; "Linked LIFFE Contract" means an Exchange Contract made available for trading on the market pursuant to a Link, which is specified as such in a General Notice published from time to time by the Exchange and is linked to a Participating Exchange Contract; "Linked Participant Exchange Contract" means a Participating Exchange Contract specified as such in a General Notice published from time to time by the Exchange and is linked to an Exchange Contract; "Participating Exchange" means an exchange which has concluded one or more agreements in relation to a Link with the Exchange and/or LCH pursuant to which:(i) contracts in the terms of one or more Linked LIFFE Contracts are to be transferred to, for clearing by, such exchange or its clearing house; or(ii)contracts in the terms of a Linked Participating Exchange Contract are to be transferred to, for clearing by, LCH. The term "Participating Exchange" shall include any clearing house, which from time to time provides clearing services to such exchange; "Participating Exchange Contract" in respect of a Participating Exchange, means a class of contract permitted to be made by Participating Exchange Members under Participating Exchange rules. GENERAL PROVISIONS 3.1 EXCLUSION OF LIABILITY We and LIFFE Administration and Management ("LIFFE") wish to draw to your attention that LIFFE shall have no liability whatsoever to any member or client in contract, tort (including, without limitation, negligence), trust, as fiduciary or under any other cause of action (except in respect of gross negligence, wilful default or fraud on its part), in respect of any damage, loss, cost or expense of whatsoever nature suffered or incurred by any member or client, as the case may be, as a result of: any suspension, restriction or closure of the market administered by either a Participating Exchange or LIFFE, whether for a temporary period or otherwise, or as a result of a decision taken on the occurrence of a market emergency; any failure by a Participating Exchange, LIFFE or LCH to supply each other with data or information in accordance with arrangements from time to time established between all or any of them; the failure of communications facilities or technology supplied, operated or used by either a Participating Exchange, LIFFE or LCH for the purposes of the Link; any event which is outside its or their control; any act or omission of either a Participating Exchange (where a Participating Exchange is acting otherwise than in connection with its clearing function) or LIFFE in connection with any Participating Exchange Contract, Linked LIFFE Contract or Linked Participating Exchange Contract or any act or omission of a Participating Exchange, LIFFE, or LCH (as the case may be) in connection with the operation of the Link or the arrangements for the transfer of contracts. 3.2 GOVERNING LAW This agreement and all contracts in the terms of LIFFE Contracts made under this agreement shall be subject to and construed in accordance with English Law. Page 29 3.3 MARGIN AND CLIENT MONEY/ASSETS Following the transfer of a contract in the terms of a Linked LIFFE Contract and the creation of a contract in the terms of a Participating Exchange Contract or prior to the transfer of a contract in the terms of a Linked Participating Exchange Contract and the creation of a contract in the terms of a LIFFE Contract (as the case may be), margin requirements will be determined in accordance with the rules of the Participating Exchange rather than LIFFE Rules. Any money or assets held in any country other than the UK may be subject to the applicable law of that country rather than UK client money and other assets rules, and you should satisfy yourself that this is acceptable to you before instructing us to transact any such business. PROVISIONS RELATING TO OUTWARD TRANSFERS OF LINKED LIFFE CONTRACTS 3.4 RULES OF LIFFE All contracts in the terms of a Linked LIFFE Contract made on LIFFE shall be subject to the Rules of LIFFE as from time to time in force. 3.5 TRANSFER We shall endeavour to secure the transfer through the relevant Link of each contract in the terms of a Linked LIFFE Contract made between us which is intended for transfer. Upon confirmation by the relevant Participating Exchange of receipt of trade/position details from LCH, rights and obligations under such contract, save for outstanding obligations with respect to fees and margin and those rights and obligations referred to in the Rules of LIFFE and the Regulations of LCH, shall be discharged and there shall arise simultaneously a contract in the terms of a Participating Exchange Contract between us. The contract in terms of a Participating Exchange Contract shall be subject to the rules of the relevant Participating Exchange and shall not be subject to the provisions of this agreement. 3.6 DELAYED TRANSFER In the event that, on any LIFFE trading day, LCH is unable for whatever reason to transmit details of all contracts in the terms of a Linked LIFFE Contract, or the relevant Participating Exchange is unable to receive or acknowledge receipt of all such details, any such contract made between us on that day shall remain as an undischarged contract in the terms of a Linked LIFFE Contract (but without prejudice to any default provisions agreed between us which may be operated to discharge such contract), subject to the Rules of LIFFE and the General Regulations and Default Rules of LCH as from time to time in force, until such time as transfer can be achieved. 3.7 IMPOSSIBILITY OF TRANSFER If it is not possible for whatever reason for details of contracts in the terms of the Linked LIFFE Contract to be transmitted by LCH, or for the relevant Participating Exchange to receive or acknowledge receipt of all such details, so that transfer of such contracts cannot occur on any particular day, and any circumstances preventing such transfer continues so that the Link is suspended or terminated, any such contract made between us during any such period shall remain as an undischarged contract in the terms of a Linked LIFFE Contract, subject to the Rules of LIFFE and the Regulations of LCH as from time to time in force, and shall be performed in accordance with its terms or may be closed out or otherwise discharged, in accordance with the Rules and any agreement reached between us. PROVISIONS RELATING TO INWARD TRANSFERS OF LINKED PARTICIPATING EXCHANGE CONTRACTS 3.8 TRANSFER In respect of each contract in the terms of a Linked Participating Exchange Contract made between us which is intended for transfer through the relevant Link, rights and obligations under such contract, save for outstanding obligations with respect to fees or margin and any other rights or obligations referred to in the Rules of the Participating Exchange, shall be discharged upon confirmation by LCH of receipt of trade/position details from the Participating Exchange and there shall arise simultaneously a contract in the terms of a LIFFE Contract between us. The LIFFE Contract shall be subject to the Rules of LIFFE and the General Regulations and Default Rules of LCH. 3.9 DELAYED TRANSFER In the event that, on any Participating Exchange trading day, the relevant Participating Exchange is unable for whatever reason to transmit details of all contracts in the terms of a Linked Participating Exchange Contract, or LCH is unable to receive or acknowledge receipt of all such details, any such contract made between us on that Participating Exchange on that day shall remain an undischarged contract in the terms of a Linked Participating Exchange Contract (but without prejudice to any default provisions agreed between us which might be operated to discharge such contract), Page 30 subject to the rules of the Participating Exchange as from time to time in force, until such time as transfer can be achieved. 3.10 IMPOSSIBILITY OF TRANSFER If it is not possible for whatever reason for details of contracts in the terms of a Linked Participating Exchange Contract to be transmitted by the relevant Participating Exchange, or for LCH to receive or acknowledge receipt of all such details, so that transfer of such contracts cannot occur on any particular day, and any circumstance preventing such transfer continues so that the Link is suspended or terminated, any such contract made between us on that Participating Exchange during that period shall remain as an undischarged contract in the terms of a Linked Participating Exchange Contract, subject to the rules of the Participating Exchange as from time to time in force and shall be performed in accordance with its terms or may be closed out or otherwise discharged in accordance with the Rules and any agreement reached between us. Page 31 PART THREE SCHEDULE 3 ELECTRONIC TRADING AND ORDER ROUTING SYSTEMS FIA DISCLOSURE STATEMENT Electronic trading and order routing systems differ from traditional open outcry pit trading and manual order routing methods. Transactions using an electronic system are subject to the rules and regulations of the exchange(s) offering the system and/or listing the contract. Before you engage in transactions using an electronic system, you should carefully review the rules and regulations of the exchange(s) offering the system and/or listing contracts you intend to trade. DIFFERENCES AMONG ELECTRONIC TRADING SYSTEMS Trading or routing orders through electronic systems varies widely among the different electronic systems. You should consult the rules and regulations of the exchange offering the electronic system and/or listing the contract traded or order routed to understand, among other things, in the case of trading systems, the system's order matching procedure, opening and closing procedures and prices, error trade policies, and trading limitations or requirements; and in the case of all systems, qualifications for access and grounds for termination and limitations on the types of orders that may be entered into the system. Each of these matters may present different risk factors with respect to trading on or using a particular system. Each system may also present risks related to system access, varying response times, and security. In the case of internet-based systems, there may be additional types of risks related to system access, varying response times and security, as well as risks related to service providers and the receipt and monitoring of electronic mail. RISKS ASSOCIATED WITH SYSTEM FAILURE Trading through an electronic trading or order routing system exposes you to risks associated with system or component failure. In the event of system or component failure, it is possible that, for a certain time period, you may not be able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. System or component failure may also result in loss of orders or order priority. SIMULTANEOUS OPEN OUTCRY PIT AND ELECTRONIC TRADING Some contracts offered on an electronic trading system may be traded electronically and through open outcry during the same trading hours. You should review the rules and regulations of the exchange offering the system and/or listing the contract to determine how orders that do not designate a particular process will be executed. LIMITATION OF LIABILITY Exchanges offering an electronic trading or order routing system and/or listing the contract may have adopted rules to limit their liability, the liability of FCMs, and software and communication system vendors and the amount of damages you may collect for system failure and delays. These limitations of liability provisions vary among the exchanges. You should consult the rules and regulations of the relevant exchange(s) in order to understand these liability limitations. Page 32 PART FOUR NON-PRIVATE CUSTOMER DOCUMENTS (EXCHANGE-TRADED DERIVATIVES) CUSTOMER SIGNATURES To: Morgan Stanley & Co. International Limited Morgan Stanley Securities Limited The undersigned agrees to the terms of the Non-Private Customer Documents (Exchange-traded Derivatives) including without limitation, the indemnities, exclusions and restrictions of duties and liabilities in your favour therein and any additional enclosures, all of which we have read and understood. Date: _____________ ______________ Signed: _____________ ______________ Name(s): _____________ ______________ [Print] Authorised Signatory(ies) for and on behalf of _____________ [Print Name of Client (Non-Private Customer)] All notices or other documents pursuant to this booklet shall be served at the following address: Address: For the attention of: Telex and Answerback: Fax: Corporate Registered Office: (if different from above) Designated Offices for the purposes of Master Netting Agreement: (if different from above) CUSTOMERS DOMICILED IN LUXEMBOURG ONLY I/We confirm that I/we specifically and expressly consent to Clause 9, 21, 22, 23, 32, 33, 34, 39, 40 and 42 of the above Agreement for the purposes of Article 1135-1 of the Civil Code and Article 1 of the Protocol annexed to the Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters signed in Brussels on 27th September 1968. Signed: Page 33 THIRD PARTY TRADING AUTHORISATION THIS DOCUMENT SHOULD BE COMPLETED ONLY BY CUSTOMERS WHO HAVE SIGNED THE CUSTOMER SIGNATURE PAGES BUT WHO WISH TO DELEGATE AUTHORITY TO AN INVESTMENT ADVISOR, INVESTMENT MANAGER OR OTHER THIRD PARTY. To: Morgan Stanley & Co. International Limited Morgan Stanley Securities Limited Dear Sirs I/We refer to the Non-Private Customer Documents (Exchange-traded Derivatives) set out on the preceding pages of this booklet which is supplemented hereby. Terms used herein have the same meanings as ascribed to them in the Agreement and any Customer Documents referred to therein. I/We hereby authorise the individual or organisation named as agent (in the "Agent's Details" section below) and hereinafter referred to as the "Agent" as my/our agent to purchase, sell and trade generally in, exercise, and otherwise enter into and carry out transactions and give other instructions relating to financial and commodity futures, options and contracts for differences (and any related transactions including without limitation, foreign exchange transactions to facilitate any of the foregoing), on margin or otherwise, for my/our account and risk and in my/our name or number on your books, including trades which will or may result in me/us having short position in any such investment. I/We authorise you to accept and act on: (a) any and all orders and instructions received in connection with such transactions; and (b) any other instructions of the Agent in any respect concerning my/our account(s) with you (including, without limitation, delivering or otherwise transferring as the Agent may order or direct, and whether or not any such delivery or other transfer is to be made against payment, or any such payment is to be made against delivery or other transfer). In all matters or things mentioned above or otherwise concerning or incidental to any of my/our accounts(s) with you, the Agent is authorised to act for me/us and on my/our behalf in the same manner and with the same effect as I/we myself/ourselves might or could do. The Agent may from time to time appoint (in writing, effective upon receipt thereof by you) individuals to sign documents and give instructions pursuant to this authorisation. I/We acknowledge that any Transaction entered into by the Agent pursuant to the above authority will be governed by the Customer Documents and that I/we shall have all the rights and obligations in respect thereof as are contained in the Customer Documents and, without prejudice to the generality of the foregoing, I/we shall indemnify you and hold you harmless from, and pay you promptly on demand, any and all losses, costs, expenses, damages and liabilities whatsoever (including consequential and special damage) arising directly or indirectly from any such Transaction or debt balances due thereon. This authorisation and indemnity is in addition to, and in no way limits or restricts, any rights which you may have under the Customer Documents and any other agreement or agreements entered between us. I/We acknowledge that neither you nor any of your associates nor any of your or their directors, officers or employees will be liable for any loss howsoever suffered by me/us pursuant to this authorisation unless loss arises from your negligence, bad faith, wilful default, or fraud. I/We have carefully examined the provisions of the documents by which I/we have given trading authority or control over my/our account(s) to the Agent and understand fully the obligations which I/we have assumed by executing that document. I/We understand that neither you nor any of your associates are in any way responsible for any loss to me/us occasioned by the actions of the Agent, and you do not, by implication or otherwise, endorse the operating methods of the Agent. We further understand that to the extent that we now or hereafter give to the Agent authority to exercise any of my/our account(s) I/we do so at our my/own risk. This authorisation may be terminated by me/us at any time with effect from actual receipt by you of written notice of termination. Termination of this authorisation shall not affect any liability resulting from transactions initiated prior to such termination. This authorisation and indemnity shall inure to your benefit and that of your successors and assigns. Yours faithfully Signed: . Page 34 AGENT'S DETAILS (PLEASE PRINT) Name of Agent: Address of Agent: Telephone: Telex and Answerback: Page 35 CERTIFICATES OF AUTHORITY TO DEAL FOR USE BY COMPANIES AND PARTNERSHIPS Certificate of Company Secretary/Authorised Partner* Extracts from the Minutes of the Meeting of the Board of Directors/Partners/Management Committee* of ____________________ (the "Company/Partnership") held at ____________________ on ____________________ 19__ IT WAS RESOLVED THAT: (1) the Company/Partnership* is by its Memorandum and Articles of Association/Partnership Agreement/constitutional documents* empowered to trade in financial and commodity futures, options and contracts for differences ("investments") and to enter into and perform the Non-Private Customer Documents between the Company and Morgan Stanley & Co. International Limited and Morgan Stanley Securities Limited concerning investment and dealing and related services (including such transactions in such investments); (2)+ trading or dealing in financial and commodity futures, options and contracts for differences and/or other investments pursuant to the Non-Private Customer Documents would be carrying on the ordinary business of the Partnership; (2/3*)any one/two* of the undermentioned designated persons be hereby authorised, on behalf of the Company/Partnership* (a) to accept and sign the Non-Private Customer Documents; (b) to sign all documents in connection with, and give all instructions relating to, trading in investments and otherwise howsoever under and pursuant to the Non-Private Customer Documents; and (c) to delegate authority to one or more persons to sign any documents, give any instructions and do anything else permitted to be signed given or done by such designated person. DESIGNATED PERSONS Name Position Signature I certify that the above is a true extract from the Minutes of a duly convened and held meeting of the Board of Directors/Partners/Management Committee* of the Company/Partnership* Signed: Name: Title: Secretary/Director/Authorised Partner* Date: *Delete as appropriate + Partnerships NOTE: Companies incorporated outside the UK, British Dependent Territories and Commonwealth may, instead of extract minutes comprising a director's resolution, provide a certificate signed by a duly authorised officer of the Company (and showing the officer's name and title) and comprising both paragraphs (1) and (2) as applicable to companies but preceded by the words "This is to certify that". Page 36 Corporate general partners of a limited partnership should provide a certificate as a company but including appropriate additional references to the partnership (including paragraph 2 for partnerships). CERTIFICATE OF TRUSTEES (FOR USE BY TRUSTEES) Extracts from the Minutes of a Meeting of the trustees of (the "Trust") held at _____________________________ on _________ 19__ IT WAS RESOLVED THAT all the Trustees accept and authorise the signature on behalf of each of them of the Non-Private Customer Documents between the Trustees and Morgan Stanley & Co. International Limited and Morgan Stanley Securities Limited concerning transactions in financial and commodity futures, options and contracts for difference and that, in connection therewith: (1) The Trustees, after taking legal advice, were satisfied that they were empowered by the Trust Deed(s) constituting the Trust to enter into and perform the Non-Private Customer Documents and all liabilities and obligations attaching to the "Private Customer" (as defined) thereunder; (2) The exercise of all rights and privileges of the "Non-Private Customer" (as so defined) under the Non-Private Customer Documents would be carried out only in accordance with the said powers contained in the Trust Deed(s) constituting the Trust and in particular after obtaining all proper and requisite investment advice; (3) The Trustees were satisfied that they were empowered by the said Trust Deed(s) to delegate the requisite powers and pursuant to that power any one/two* of the undermentioned persons be hereby authorised, on behalf of the Trustees: (a) to sign the Non-Private Customer Documents and all documents in connection with, and give all instructions relating to, the Non-Private Customer Documents; and (b) to delegate authority to one or more persons to sign any documents, give any instructions and do anything else permitted to be signed, given or done by such designated person; DESIGNATED PERSONS Name Position Signature (4) The Trustees would give to Morgan Stanley & Co. International Limited and Morgan Stanley Securities Limited written notice in the terms if sub-paragraph (3) above each time there was an alteration in the persons authorised as referred to in such sub-paragraph. I certify that the above is a true extract from the Minutes of a duly convened and held meeting of all the Trustees of the Trust. Signed: ____________ ____________ Name: ____________ ____________ Title: Chairman of the Trustees/Authorised Trustee* ____________ ____________ Date: ____________ ____________ * Delete as appropriate Page 37 EX-10.15 5 a2041380zex-10_15.txt EXHIBIT 10.15 FOREIGN EXCHANGE AND OPTIONS MASTER AGREEMENT (FEOMA) MASTER AGREEMENT dated as of APRIL 30, 2000 by and between MORGAN STANLEY & CO. INCORPORATED, a Delaware corporation, and MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P., A Delaware Limited Partnership. 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. "AMERICAN STYLE OPTION" means an Option which may be exercised on any Business Day up to and including the Expiration Time. "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) Section 3.2, a day which is a Local Banking Day for the applicable Designated Office of the Buyer; (ii) Section 5.1 and the definition of American Style Option, a day which is a Local Banking Day for the applicable Designated Office of the Seller; (iii) 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; (iv) solely in relation to delivery of a Currency, a day which is a Local Banking Day in relation to that Currency; and (v) 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. "BUYER" means the owner of an Option. "CALL" means an Option entitling, but not obligating (except upon exercise), the Buyer to purchase from the Seller at the Strike Price a specified quantity of the Call Currency. "CALL CURRENCY" means the Currency agreed to as such at the time an Option is entered into, as evidenced in a Confirmation. "CLOSE-OUT AMOUNT" has the meaning given to it in Section 8.1. "CLOSE-OUT DATE" means a day on which, pursuant to the provisions of Section 8.1, the Non-Defaulting Party closes out Currency Obligations and/or Options or such 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 8.1. "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 8.1. "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 or an Option, and specifying: (A) in the case of an FX Transaction, the following information: (i) the Parties thereto and the 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; and (B) in the case of an Option, the following information: (i) the Parties thereto and the Designated Offices through which they are respectively acting, (ii) whether the Option is a Call or a Put, (iii) the Call Currency and the Put Currency that are the subject of the Option and their respective quantities, (iv) which Party is the Seller and which is the Buyer, (v) the Strike Price, (vi) the Premium and the Premium Payment Date, (vii) the Expiration Date, (viii) the Expiration Time, (ix) whether the Option is an American Style Option or a European Style Option, and (x) such other matters, if any, as the Parties may agree. "CREDIT SUPPORT" has the meaning given to it in Section 8.2. "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, the application of Section 6.3(a) or (b), or an exercised Option (except, for the purposes of Section 8.1 only, one that is to be settled at its In-the-Money Amount under Section 5.5). "CURRENCY PAIR" means the two Currencies which potentially may be exchanged in connection with an FX Transaction or upon the exercise of an Option, one of which shall be the Put Currency and the other the Call Currency. 2 "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. "EUROPEAN STYLE OPTION" means an Option for which Notice of Exercise may be given only on the Option's Expiration Date up to and including the Expiration Time, unless otherwise agreed. "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 (including, but not limited to, a Premium payment) to the Non-Defaulting Party with respect to any Currency Obligation or Option 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 or Option; 3 (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 11.14 if made applicable to the Agreement in Part XI of the Schedule. "EXERCISE DATE", in respect of any Option, means the day on which a Notice of Exercise received by the applicable Designated Office of the Seller becomes effective pursuant to Section 5.1. 4 "EXPIRATION DATE", in respect of any Option, means the date agreed to as such at the time the Option is entered into, as evidenced in a Confirmation. "EXPIRATION TIME", in respect of any Option, means the latest time on the Expiration Date on which the Seller must accept a Notice of Exercise as agreed to at the time the Option is entered into, as evidenced in a Confirmation. "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. "IN-THE-MONEY AMOUNT" means (i) in the case of a Call, the excess of the Spot Price over the Strike Price, multiplied by the aggregate amount of the Call Currency to be purchased under the Call, where both prices are quoted in terms of the amount of the Put Currency to be paid for one unit of the Call Currency; and (ii) in the case of a Put, the excess of the Strike Price over the Spot Price, multiplied by the aggregate amount of the Put Currency to be sold under the Put, where both prices are quoted in terms of the amount of the Call Currency to be paid for one unit of the Put Currency. "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. 5 "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. "NOTICE OF EXERCISE" means telex, telephonic or other electronic notification (excluding facsimile transmission) providing assurance of receipt, given by the Buyer prior to or at the Expiration Time, of the exercise of an Option, which notification shall be irrevocable. "NOVATION NETTING OFFICE(S)", in respect of a Party, means the Designated Office(s) specified in Part V of the Schedule. "OPTION" means a currency option which is or shall become subject to the Agreement. "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 of 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. "PREMIUM", in respect of any Option, means the purchase price of the Option as agreed upon by the Parties, and payable by the Buyer to the Seller thereof. "PREMIUM PAYMENT DATE", in respect of any Option, means the date on which the Premium is due and payable, as agreed to at the time the Option is entered into, as evidenced in a Confirmation. "PROCEEDINGS" means any suit, action or other proceedings relating to the Agreement, any FX Transaction or any Option. "PUT" means an Option entitling, but not obligating (except upon exercise), the Buyer to sell to the Seller at the Strike Price a specified quantity of the Put Currency. "PUT CURRENCY" means the Currency agreed to as such at the time an Option is entered into, as evidenced in a Confirmation. "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. "SELLER" means the Party granting an Option. "SETTLEMENT DATE" means, in respect of: (i) an American Style Option, the Spot Date of the Currency Pair on the Exercise Date of such Option, and (ii) a European Style Option, the Spot Date of the Currency Pair on the Expiration Date of such Option; and, 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, "Settlement Date" means such two (2) Local Banking Days. "SETTLEMENT NETTING OFFICE(S)", in respect of a Party, means the Designated Office(s) specified in Part V of the Schedule. 6 "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. "SPOT DATE" means the spot delivery day for the relevant Currency Pair as generally used by the relevant foreign exchange market. "SPOT PRICE" means the rate of exchange at the time at which such price is to be determined for foreign exchange transactions in the relevant Currency Pair for value on the Spot Date, as determined in good faith: (i) by the Seller, for purposes of Section 5, and (ii) by the Non-Defaulting Party, for purposes of Section 8. "STRIKE PRICE", in respect of any Option, means the price at which the Currency Pair may be exchanged, as agreed to at the time the Option is entered into, as evidenced in a Confirmation. "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 AND OPTIONS 2.1 SCOPE OF THE AGREEMENT. The Parties (through their respective Designated Offices) may enter into (i) FX Transactions, for such quantities of such Currencies, as may be agreed subject to the terms of the Agreement, and (ii) Options, for such Premiums, with such Expiration Dates, at such Strike Prices and for the purchase or sale of 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 or Option with the other Party (other than in connection with an exercised Option). Unless otherwise agreed in writing by the Parties, each FX Transaction and Option entered into between Designated Offices of the Parties on or after the Effective Date shall be governed by the Agreement. Each FX Transaction and Option between any two 7 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 Option (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 and Options are entered into in reliance upon such fact, it being understood that the Parties would not otherwise enter into any FX Transaction or Option. 2.3 CONFIRMATIONS. FX Transactions and Options 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 or Option. 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, (i) in the case of an FX Transaction, the other provisions of the Agreement shall prevail, and the Confirmation shall not modify the other terms of the Agreement and (ii) in the case of an Option, the terms of the Confirmation shall prevail, and the other terms of the Agreement shall be deemed modified with respect to such Option, except for the manner of confirmation under Section 2.3 and, if applicable, discharge of Options under Section 4. SECTION 3. OPTION PREMIUM 3.1 PAYMENT OF PREMIUM. Unless otherwise agreed in writing by the Parties, the Buyer shall be obligated to pay the Premium related to an Option no later than its Premium Payment Date. 3.2 LATE PAYMENT OR NON-PAYMENT OF PREMIUM. If any Premium is not received on or before the Premium Payment Date, the Seller may elect: (i) to accept a late payment of such Premium; (ii) to give written notice of such non-payment and, if such payment shall not be received within two (2) Business Days of such notice, treat the related Option as void; or (iii) to give written notice of such non-payment and, if such payment shall not be received within two (2) Business Days of such notice, treat such non-payment as an Event of Default under clause (i) of the definition of Event of Default. If the Seller elects to act under either clause (i) or (ii) of the preceding sentence, the Buyer shall pay all out-of-pocket costs and actual damages incurred in connection with such unpaid or late Premium or void Option, including, without limitation, interest on such Premium from and including the Premium Payment Date to but excluding the late payment date in the same Currency as such Premium at overnight LIBOR and any other losses, costs or expenses incurred by the Seller in connection with such terminated Option, for the loss of its bargain, its cost of funding, or the loss incurred as a result of terminating, liquidating, obtaining or re-establishing a delta hedge or related trading position with respect to such Option. 8 SECTION 4. DISCHARGE AND TERMINATION OF OPTIONS; NETTING OF OPTION PREMIUMS 4.1 DISCHARGE AND TERMINATION. If agreed in Part V of the Schedule, any Call or any Put written by a Party will automatically be discharged and terminated, in whole or in part, as applicable, against a Call or a Put, respectively, written by the other Party, such discharge and termination to occur automatically upon the payment in full of the last Premium payable in respect of such Options; PROVIDED that such discharge and termination may only occur in respect of Options: (i) each being with respect to the same Put Currency and the same Call Currency; (ii) each having the same Expiration Date and Expiration Time; (iii) each being of the same style, i.e. either both being American Style Options or both being European Style Options; (iv) each having the same Strike Price; (v) each being transacted by the same pair of Designated Offices of Buyer and Seller; and (vi) neither of which shall have been exercised by delivery of a Notice of Exercise; and, upon the occurrence of such discharge and termination, neither Party shall have any further obligation to the other Party in respect of the relevant Options or, as the case may be, parts thereof so discharged and terminated. Such discharge and termination shall be effective notwithstanding that either Party may fail to record such discharge and termination in its books. In the case of a partial discharge and termination (i.e., where the relevant Options are for different amounts of the Currency Pair), the remaining portion of the Option which is partially discharged and terminated shall continue to be an Option for all purposes of the Agreement, including this Section 4.1. 4.2 NETTING OF OPTION PREMIUMS. If agreed in Part V of the Schedule and if, on any date, Premiums would otherwise be payable under the Agreement in the same Currency between the same respective Designated Offices of the Parties, then, on such date, each Party's obligation to make payment of any such Premium will be automatically satisfied and discharged and, if the aggregate Premium(s) that would otherwise have been payable by such Designated Office of one Party exceeds the aggregate Premium(s) that would otherwise have been payable by such Designated Office of the other Party, replaced by an obligation upon the Party by whom the larger aggregate Premium(s) would have been payable to pay the other Party the excess of the larger aggregate Premium(s) over the smaller aggregate Premium(s) and, if the aggregate Premiums are equal, no payment shall be made. SECTION 5. EXERCISE AND SETTLEMENT OF OPTIONS 5.1 EXERCISE OF OPTIONS. The Buyer may exercise an Option by delivery to the Seller of a Notice of Exercise. Subject to Section 5.3, if a Notice of Exercise with respect to an Option has not been received by the Seller prior to or at the Expiration Time, the Option shall expire and become void and of no effect. Any Notice of Exercise shall (unless otherwise agreed): (i) in respect of an American Style Option, (A) if received at or prior to 3:00 p.m. on a Business Day, be effective upon receipt thereof by the Seller, and (B) if received after 3:00 p.m. on a Business Day, be effective only as of the opening of business of the Seller on the first Business Day subsequent to its receipt; and (ii) in respect of a European Style Option, if received on or, if the parties have so agreed, before the Expiration Date, prior to or at the Expiration Time, be effective upon receipt thereof by the Seller. 9 5.2 NO PARTIAL EXERCISE. Unless otherwise agreed by the Parties, an Option may be exercised only in whole. 5.3 AUTOMATIC EXERCISE. Unless otherwise agreed in Part VI of the Schedule or unless the Seller is otherwise instructed by the Buyer, if an Option has an In-the-Money Amount at its Expiration Time that equals or exceeds the product of (x) 1% of the Strike Price (or such other percentage or amount as may have been agreed by the Parties) and (y) the amount of the Call Currency or Put Currency, as appropriate, then the Option shall be deemed automatically exercised. In such case, the Seller may elect to settle such Option either in accordance with Section 5.4 or by payment to the Buyer on the Settlement Date for such Option of the In-the-Money Amount, as determined at the Expiration Time or as soon thereafter as practicable. In the latter case, the sole obligations of the Parties with respect to settlement of such Option shall be to deliver or receive the In-the-Money Amount of such Option on the Settlement Date. The Seller shall notify the Buyer of its election of the method of settlement of an automatically exercised Option as soon as practicable after the Expiration Time. 5.4 SETTLEMENT OF EXERCISED OPTIONS. An exercised Option shall settle on its Settlement Date. Subject to Section 5.3 and 5.5, on the Settlement Date, the Buyer shall pay the Put Currency to the Seller for value on the Settlement Date and the Seller shall pay the Call Currency to the Buyer for value on the Settlement Date. An exercised Option shall be treated as an FX Transaction and a Currency Obligation (except, for the purposes of Section 8.1 only, if it is to be settled at its In-the-Money Amount), and for this purpose the relevant Settlement Date shall be treated as the Value Date of the FX Transaction. 5.5 SETTLEMENT AT IN-THE-MONEY AMOUNT. An Option shall be settled at its In-the-Money Amount if so agreed by the Parties at the time such Option is entered into. In such case, the In-the-Money Amount shall be determined based upon the Spot Price at the time of exercise or as soon thereafter as practicable. The sole obligations of the Parties with respect to settlement of such Option shall be to deliver or receive the In-the-Money Amount of such Option on the Settlement Date. SECTION 6. SETTLEMENT AND NETTING OF FX TRANSACTIONS 6.1 SETTLEMENT OF FX TRANSACTIONS. Subject to Sections 6.2 and 6.3, 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. 6.2 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. 6.3 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 10 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 6.3 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 6.3(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. 6.4 GENERAL (a) INAPPLICABILITY OF SECTIONS 6.2 AND 6.3. The provisions of Sections 6.2 and 6.3 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 6.3 shall apply notwithstanding that either Party may fail to record the new Currency Obligation in its books. (c) CUT-OFF DATE AND TIME. The provisions of Section 6.3 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 7. REPRESENTATIONS, WARRANTIES AND COVENANTS 7.1 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 and each Option that: (i) it has authority to enter into the Agreement (including such FX Transaction or Option, as the case may be); (ii) the persons entering into the Agreement (including such FX Transaction or Option, as the case may be) on its behalf have been duly authorized to do so; (iii) the Agreement (including such FX Transaction or Option, as the case may be) 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 an Event of Default, has occurred and is continuing with respect to it; (v) it acts as principal in entering into each FX Transaction and Option and exercising each and every Option; 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. 7.2 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. 11 SECTION 8. CLOSE-OUT AND LIQUIDATION 8.1 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) and Options, except to the extent that in the good faith opinion of the Non-Defaulting Party certain of such Currency Obligations or Options 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 and Options. 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 and Options, 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 and Options as provided below. (b) LIQUIDATION OF CURRENCY OBLIGATIONS. 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 12 (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 8.1(b)(ii)) (which for the purposes of the 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 8.1(b)(ii)) (which for the purposes of the aggregation shall be a negative figure). (c) LIQUIDATION OF OPTIONS. To liquidate unexercised Options and exercised Options to be settled at their In-the-Money Amounts that have been terminated by close-out, the Non-Defaulting Party shall: (i) CALCULATING SETTLEMENT AMOUNT. Calculate in good faith with respect to each such terminated Option, except to the extent that in the good faith opinion of the Non-Defaulting Party certain of such Options may not be liquidated as provided herein under applicable law, as of the Close-Out Date or as soon as reasonably practicable thereafter a settlement amount for each Party equal to the aggregate of: (A) with respect to each Option purchased by such Party, and which the other Party has not elected to treat as void pursuant to Section 3.2(ii) for lack of payment of the Premium, the current market premium for such Option; (B) with respect to each Option sold by such Party and which such Party has not elected to treat as void pursuant to Section 3.2(ii) for lack of payment of the Premium, any unpaid Premium, PROVIDED that, if the Close-Out Date occurs before the Premium Payment Date, such amount shall be discounted from and including the Premium Payment Date to but excluding the Close-Out Date at a rate equal to LIBOR on the Close-Out Date and, if the Close-Out Date occurs after the Premium Payment Date, to the extent permitted by applicable law, the settlement amount shall include interest on any unpaid Premium from and including the Premium Payment Date to but excluding the Close-Out Date in the same Currency as such Premium at overnight LIBOR; 13 (C) with respect to any exercised Option to be settled at its In-the-Money Amount (whether or not the Close-Out Date occurs before the Settlement Date for such Option), any unpaid amount due to such Party in settlement of such Option and, if the Close-Out Date occurs after the Settlement Date for such Option, to the extent permitted by applicable law, interest thereon from and including the applicable Settlement Date to but excluding the Close-Out Date at overnight LIBOR; and (D) without duplication, the amount that the Non-Defaulting Party reasonably determines in good faith, as of the Close-Out Date or as of the earliest date thereafter that is reasonably practicable, to be its additional losses, costs and expenses in connection with such terminated Option, for the loss of its bargain, its cost of funding, or the loss incurred as a result of terminating, liquidating, obtaining or re-establishing a delta hedge or related trading position with respect to such Option; (ii) CONVERTING TO BASE CURRENCY. Convert any settlement amount calculated in accordance with clause (i) above in a Currency other than the Non-Defaulting Party's Base Currency into such Base Currency at the Spot Price at which, at the time of the 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 (or, if such Spot Price is not available, conversion shall be accomplished by the Non-Defaulting Party using any commercially reasonable method); and (iii) NETTING. Net such settlement amounts with respect to each Party so that all such amounts are netted to a single liquidated amount payable by one Party to the other Party. (d) FINAL NETTING. The Non-Defaulting Party shall net (or, if both are payable by one Party, add) the liquidated amounts payable under Sections 8.1(b) and 8.1(c) with respect to each Party so that such amounts are netted (or added) to a single liquidated amount payable by one Party to the other Party as a settlement payment. 8.2 SET-OFF AGAINST CREDIT SUPPORT. Where close-out and liquidation occurs in accordance with Section 8.1, the Non-Defaulting Party shall also be entitled (i) to set off the net payment calculated in accordance with Section 8.1(d) 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 8.1(d) 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 rate specified in Section 8.1(c)(ii). 8.3 OTHER FOREIGN EXCHANGE TRANSACTIONS AND CURRENCY OPTIONS. Where close-out and liquidation occurs in accordance with Section 8.1, 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 or currency option entered into between the Parties which is then outstanding in accordance with the provisions of Section 8.1, 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 (including exercised options, provided that cash-settled options shall be treated analogously to Options to be settled at their In-the-Money Amount) and each unexercised option being treated as if it were an Option under the Agreement. 14 8.4 PAYMENT AND LATE INTEREST. The net amount payable by one Party to the other Party pursuant to the provisions of Sections 8.1 and 8.3 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 8 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 8 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. 8.5 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 8, 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. 8.6 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. 8.7 REASONABLE PRE-ESTIMATE. The Parties agree that the amounts recoverable under this Section 8 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. 8.8 NO LIMITATION OF OTHER RIGHTS; SET-OFF. The Non-Defaulting Party's rights under this Section 8 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 8.8 are subject to Section 8.7. SECTION 9. FORCE MAJEURE, ACT OF STATE, ILLEGALITY AND IMPOSSIBILITY 9.1 FORCE MAJEURE, ACT OF STATE, ILLEGALITY AND 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 Option 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 15 a Currency Obligation or Option, 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 and Option in accordance with the provisions of Section 8.1 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 8.1 as if it were the Non-Defaulting Party. Nothing in this Section 9.1 shall be taken as indicating that the Party treated as the Defaulting Party for the purpose of calculations required by Section 8.1 has committed any breach or default. 9.2 TRANSFER TO AVOID FORCE MAJEURE, ACT OF STATE, ILLEGALITY OR IMPOSSIBILITY. If Section 9.1 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 or Option, 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 the earlier to occur of the expiration date of the affected Options or twenty (20) days after it gives notice under Section 9.1, all its rights and obligations under the Agreement in respect of the affected Currency Obligations and Options 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 10. 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 or Option that (absent a written agreement between the Parties that expressly imposes affirmative obligations to the contrary for that FX Transaction or Option): (i)(A) it is acting for its own account, and it has made its own independent decisions to enter into that FX Transaction or Option and as to whether that FX Transaction or Option 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 or Option, it being understood that information and explanations related to the terms and conditions of an FX Transaction or Option shall not be considered investment advice or a recommendation to enter into that FX Transaction or Option; and (C) it has not received from the other Party any assurance or guarantee as to the expected results of that FX Transaction or Option; (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 or Option; and (iii) the other Party is not acting as a fiduciary or an advisor for it in respect of that FX Transaction or Option. SECTION 11. MISCELLANEOUS 11.1 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 16 which such amount was due, whether pursuant to a judgment of any court or pursuant to Section 8 or 9, 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. 11.2 ASSIGNMENT. Neither Party may assign, transfer or charge or purport to assign, transfer or charge its rights or 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 11.2 shall be void. 11.3 TELEPHONIC RECORDING. The Parties agree that each 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. 11.4 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 11.4 shall be effective upon receipt. 11.5 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 11.4, 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 or Options, 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. 11.6 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. 11.7 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. 11.8 MASTER AGREEMENT. Where one of the Parties to the Agreement is domiciled inthe 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). 17 11.9 TIME OF ESSENCE, ETC. Time shall be of the essence in the Agreement. Unless otherwise agreed, the times referred to in the Agreement with respect to Options shall in each case refer to the local time of the relevant Designated Office of the Seller of the relevant Option. 11.10 HEADINGS. Headings in the Agreement are for ease of reference only. 11.11 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 11.4. 11.12 AMENDMENTS. No amendment, modification or waiver of the Agreement will be effective unless in writing executed by each of the Parties; PROVIDED that the Parties may agree in a Confirmation that complies with Section 2.3 to amend the Agreement solely with respect to the Option that is the subject of the Confirmation. 11.13 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. 11.14 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. 11.15 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 an 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 12. LAW AND JURISDICTION 12.1 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. 12.2 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 18 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. 12.3 WAIVER OF JURY TRIAL. Each Party irrevocably waives any and all right to trial by jury in any Proceedings. 12.4 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 court, (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. MORGAN STANLEY & CO. INCORPORATED By /S/ ZOE CRUZ --------------------------------- Name: Zoe Cruz Title: Managing Director MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. By: DEMETER MANAGEMENT CORPORATION /S/ ROBERT E. MURRAY ------------------------------------ Name: Robert E. Murray Title: President and Chairman 19 SCHEDULE Schedule to the International Foreign Exchange and Options Master Agreement dated as of APRIL 30, 2000 (the "Agreement") between MORGAN STANLEY & CO. INCORPORATED ("Party A") and MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. ("Party B"). Part I. SCOPE OF THE AGREEMENT The Agreement shall apply to all FX Transactions outstanding between any two Designated Offices of the Parties on the Effective Date. The Agreement shall apply to all Currency Options outstanding between any two Designated Offices of the Parties on the Effective Date. Part II. DESIGNATED OFFICES Each of the following shall be a Designated Office: Party A: New York Party A is not a multibranch party. Party B: New York Party B is not a multibranch party. Each Party (the "first Party") that enters into an FX Transaction or Option through an agency, branch, or office other than its head or home office represents to the other Party (the "second Party") that, notwithstanding the place of booking office or jurisdiction of incorporation or organization of the first Party, the obligations of the first Party are the same as if it had entered into the FX Transaction or Option through its head or home office. This representation will be deemed to be repeated by the first Party on each date on which it enters into an FX Transaction or Option. Part III. NOTICES If sent to Party A: Address: Morgan Stanley & Co. Incorporated 1585 Broadway, 4th floor New York, New York 10036 Telephone Number: (212) 761-2700 Telex Number: 6801048 (Answerback: FXMS) Facsimile Number: (212) 761-0296 SWIFT Number: MSNYUS33 Name of Individual or Department to whom Notices are to be sent: Foreign Exchange Trading Department If sent to Party B: Address: PARTY B C/O Morgan Stanley Dean Witter & Co. 2 World Trade Center 62nd Floor New York, NY 10048 Telephone Number: 212-392-3270 Telex Number: Facsimile Number: 212-392-1306 SWIFT Number: Name of Individual or Department to whom Notices are to be sent: Managed Futures Part IV. PAYMENT INSTRUCTIONS [X] Name of Bank and Office, Account Number and Reference with respect to relevant Currencies: In the case of Party A, U.S. dollar payments shall be made to the following account: Bank of New York, New York ABA#: 021000018 For: Morgan Stanley & Co., New York Acct. #: 8900010932 Ref: Chips UID 23-65-84 In the case of Party B, U.S. dollar payments shall be made to the following account: Citibank N.A. ABA#: 021-000089 For: Dean Witter Reynolds Inc. Acct.#: 40611164 2 For Further Credit to Managed Futures Fund Margin Transfer 779-000999-4 |X| With respect to each Party, as may be set forth in such Standard Settlement Instructions as may be specified by such Party in a notice given in accordance with Section 11.4. Part V. NETTING A. DISCHARGE OF OPTIONS Section 4.1 shall apply to Options other than Barrier Options. B. NETTING OF PREMIUMS Section 4.2 shall apply to Premium payments for Options other than Barrier Options. C. SETTLEMENT NETTING OFFICES Each of the following shall be a Settlement Netting Office: Party A: Same as Part II. Party B: Same as Part II Party A and Party B agree that, notwithstanding Section 6.2 of the Agreement, obligations to make payments pursuant to FX Transactions shall only be netted, satisfied and discharged against obligations to make payments arising out of the same or other FX Transactions between a pair of Settlement Netting Offices and obligations to make payments pursuant to Options (including exercised Options) shall only be netted, satisfied and discharged against obligations to make payments arising out of the same or other Options (including exercised Options) between a pair of Settlement Netting Offices. D. NOVATION NETTING OFFICES Each of the following shall be a Novation Netting Office: Party A: Same as Part II Party B: Same as Part II 3 E. MATCHED PAIR NOVATION NETTING OFFICES Each of the following shall be a Matched Pair Novation Netting Office: Not applicable. Part VI. AUTOMATIC EXERCISE OF OPTIONS; CASH SETTLEMENT OF FX TRANSACTIONS A. AUTOMATIC EXERCISE OF OPTIONS Automatic Exercise of certain In-the-money Options pursuant to Section 5.3 shall apply to Party A as Buyer. Automatic Exercise of certain In-the-money Options pursuant to Section 5.3 shall apply to Party B as Buyer. B. 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 6.1 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 8.1(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 reasonably determined by Party A in accordance with market practice. Part VII. BASE CURRENCY Party A's Base Currency is U.S. Dollars. Party B's Base Currency is U.S. Dollars. Part VIII. THRESHOLD AMOUNT For purposes of clause (x) of the definition of Event of Default: Party A's Threshold Amount is U.S.D. $10,000,000. 4 Party B's Threshold Amount is U.S.D. $10,000,000. Part IX. ADDITIONAL EVENTS OF DEFAULT Clause (x) of the definition of Event of Default shall be modified by deleting the words ", or becomes capable at any time of being declared," after the words "and remains unpaid after any applicable grace period has elapsed, or (B) becomes". The following provisions which are checked shall constitute Events of Default: [X] (a) occurrence of garnishment or provisional garnishment against a claim against the Defaulting Party acquired by the Non-Defaulting Party. The automatic termination provision of Section 8.1 shall not apply to either Party that is a Defaulting Party in respect of this Event of Default. [X] (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 8.1 shall not apply to either Party that is a Defaulting Party in respect of this Event of Default. [X] (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 8.1 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 8.1 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 8.1 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 11.14 shall not apply to the Agreement. Part XII. GOVERNING LAW In accordance with Section 12.1 of the Agreement, the Agreement shall be governed by the laws of: |X| the State of New York. |_| England and Wales. 5 |_| Japan. Part XIII. CONSENT TO JURISDICTION In accordance with Section 12.2 of the Agreement, each Party irrevocably submits to the non-exclusive jurisdiction of: |X| the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City. |_| the courts of England. |_| the Tokyo District Court. Part XIV. AGENT FOR SERVICE OF PROCESS Party A appoints the following as its agent for service of process in any Proceedings in the State of New York: Not applicable. Party B appoints the following as its agent for service of process in any Proceedings in the State of New York: Not applicable. Part XV. CERTAIN REGULATORY REPRESENTATIONS A. The following FDICIA representation shall 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: |X| broker or dealer within the meaning of FDICIA; |_| depository institution within the meaning of FDICIA; |X| 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; 6 |_| 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 not (i) a plan subject to the fiduciary responsibility part of the Employee Retirement Income Security Act of 1974, as amended, or subject to Section 4975 of the Internal Revenue Code of 1986, as amended; (ii) a person acting on behalf of any such plan; or (iii) a person the assets of whom constitute assets of any such plan. C. The following CFTC trade option representation shall not apply: Each Party represents and warrants that it is a commercial user of or a merchant handling the Currencies subject to each Option and was offered or entered into each Option solely for purposes related to its business as such. D. The following CFTC eligible swap participant representation shall apply: 7 Each Party represents and warrants that it is an "eligible swap participant" under, and as defined in, 17 C.F.R. Section 35.1. 8 Part XVI. REPRESENTATIONS AND WARRANTIES In addition to the representations and warranties set forth in Section 7.1 and Part XV of this Schedule, each Party hereby represents and warrants to the other Party on the date hereof and on the date of each FX Transaction or Option, as the case may be, that: (a) it is a sophisticated investor able to evaluate and assume the risks associated with transactions in currencies as contemplated by the Agreement; (b) it is not relying upon any representations (whether written or oral) of the other Party other than the representations expressly set forth in the Agreement, this Schedule, any Credit Support Document or in any Confirmation; (c) its execution and delivery of the Agreement, and its performance of its obligations hereunder, do not and will not conflict with any law or regulation of the jurisdiction of its organization or other law or regulation applicable to it, and do not and will not violate, constitute a default under, or result in the creation or imposition of any lien or encumbrance on any of its property or assets under any agreement or instrument to which it is a party or by which its assets are bound; (d) no consent, authorization or approval (including exchange control approval) or other action by, and no notice to or filing with, any person or entity, including any governmental authority or regulatory body, other than any already obtained, made or filed and remaining in full force and effect, and the conditions of which have been duly complied with, is required in connection with the performance of its obligations under the Agreement; and (e) there are no actions, proceedings or claims pending or, to the best of its knowledge, threatened, the adverse determination of which might have a materially adverse effect on its ability to perform its obligations under, or affect the validity or enforceability of, the Agreement. Part XVII. AGREEMENT SUPERSEDING A new Section 11.16 shall be added to the Agreement which shall read as follows: "The Agreement shall supersede any other agreement between the Parties with respect to the subject matter hereof." Part XVIII. BARRIER OPTIONS In connection with any Barrier Options between the Parties, Party B acknowledges that: a) As part of its business, Party A regularly trades in the foreign exchange spot, forward, futures and options markets for its own account and for the accounts of other customers. Such trading may affect spot prices in the Currency Pair. b) Party A generally hedges its Barrier Option positions by buying or selling a quantity of the relevant currency, and may adjust (increase or decrease) its hedge as market conditions change during the life of the Options and it believes that it is more or less likely that a Barrier will be breached. Such hedging and de-hedging activity may affect spot prices and may thus affect the probability of a Barrier being breached. 9 Part XIX. 1998 FX AND CURRENCY OPTION DEFINITIONS. The 1998 FX and Currency Option Definitions as published by ISDA, EMTA and the Foreign Exchange Committee (the "Definitions") shall be applicable to each FX Transaction and Option under the Agreement, including any FX Transaction or Option outstanding on the date hereof, subject to the following: A. DEFINITIONS: 1. The term "Agreement" in Section 2.2 of the Agreement shall include the Agreement as modified and supplemented by this Part. 2. The term "FX Transaction" and "Currency Option Transaction" in the Definitions or in a Confirmation shall in all cases by considered references to an "FX Transaction" and "Option" under the Agreement. 3. All terms in this Part shall have the meanings given them above or in the Definitions, unless not defined above or in the Definitions, in which case the term shall have the meaning given in the Agreement. B. SCOPE. 1. Notwithstanding the absence of any reference to the Definitions in a Confirmation, this Part and the Definitions shall be applicable to any FX Transaction or Currency Option Transaction covered by the Agreement; provided that the Parties may agree otherwise for any Transaction as evidenced by a Confirmation that complies with Section 2.3 of the Agreement. 2. In the event of any inconsistency between the Definitions and a Confirmation, the terms of the Confirmation shall govern for the purpose of the relevant Transaction. In the event of any inconsistency between the Definitions and the Agreement, the Definitions shall prevail. C. CONFIRMATIONS. Notwithstanding Sections 2.4 and 11.12 of the Agreement, in the event of any inconsistency between the terms of a Confirmation for an FX Transaction or Currency Option Transaction and the Agreement, the terms of the Confirmation shall prevail. D. DISRUPTION EVENTS. With respect to any Disruption Event that is applicable to an FX Transaction or Currency Option Transaction pursuant to the Definitions or as otherwise agreed by the Parties as evidenced by a Confirmation, Section 9 of the Agreement shall not be applicable in respect of such FX Transaction or Currency Option Transaction, and the Parties shall be subject to the Disruption 10 Fallbacks (including but not limited to No Fault Termination) specified as applicable pursuant to the Definitions or such Confirmation. E. MISCELLANEOUS. The provisions of Part VI.B of this Schedule relating to cash settlement of FX Transactions shall apply to Non-Deliverable FX Transactions. Part XX. MARGIN AND SECURITY (a) Party B shall at all times maintain with Dean Witter Reynolds Inc. (the "Custodian") for and on behalf of Party A cash and securities acceptable to Party A (together, the "Margin") in order to secure the obligations of Party B under all open FX Transactions and Options entered into under the Agreement. The amount of Margin which Party B shall maintain with Party A shall be determined by Party A in its reasonable judgment (which determination shall be conclusive in the absence of manifest error), on a risk adjusted basis, taking into account historical volatility, imputed volatility and/or such other factors as Party A reasonably deems relevant to this determination (the "Aggregate Margin Requirement"). On or prior to the date of the Agreement, Party B shall have established a special pledge account with the Custodian (the "Account") for the purpose of holding custody of the Margin for and on behalf of Party A in accordance with the provisions of the Custodian Account Addendum, dated the date hereof, and the Agreement. Party B's failure to deposit Margin or to establish the Account as required herein shall be an Event of Default for all purposes under the Agreement (it being understood that there shall be no grace period with respect to obligations of Party B pursuant to this Part XX). (b) Whenever such Aggregate Margin Requirement shall exceed the market value of Margin on deposit with the Custodian in the Account as determined by Party A at such time in its reasonable judgment and which determination shall be conclusive in the absence of manifest error (the "Margin Balance", and the difference between such Aggregate Margin Requirement and the Margin Balance being the "Shortfall"), then Party B shall deposit immediately upon Party A's request, additional Margin in an amount at least equal to such Shortfall. (c) In furtherance of the foregoing, as security for the prompt and complete payment when due and the performance by Party B of all of its obligations to Party A under the Agreement, Party B hereby grants to Party A a continuing first priority security interest in and to all of Party B's right, title and interest in and to the Margin, the Account, all financial assets, investment property and other property and assets which are deposited from time to time in, or credited from time to time to, the Account, all security entitlements in respect thereof, all income and profits thereon, all interest, dividends and other payments and distributions with respect thereto, and all proceeds of any of the foregoing (the "Margin Collateral"). As additional security for the prompt and complete payment when due and the performance by Party B of all of its obligations to Party A under the Agreement, Party B hereby grants to Party A and its affiliates a first priority security interest in and to any property of Party B at any time held by or for the benefit of Party A or any affiliate of Party A for any purpose, including, without limitation, any property of Party B held in any account with Party A, any affiliate of Party A or with the Custodian, any financial 11 assets, investment property and other property and assets which are deposited from time to time in, or credited from time to time to, any such account, all security entitlements in respect thereof, all income and profits thereon, all interest, dividends and other payments and distributions with respect thereto, and all proceeds of any of the foregoing (the "Collateral"), to secure all obligations of Party B to Party A. If Collateral was delivered in connection with a particular agreement between Party B and Party A or any of its affiliates, then such Collateral shall secure first the obligations of Party B with respect to such agreement and second all other obligations of Party B to Party A or any of its affiliates (in such order as Party A shall determine in its sole discretion). Party A, its affiliates and the Custodian and Party B hereby each acknowledge and agree that (a) each of Party A and its affiliates which holds Collateral holds such Collateral for itself and also as agent and bailee for all other of Party A and its affiliates which are secured parties hereunder or under any agreement between Party B and Party A or any of its affiliates and (b) the Custodian which holds Collateral for and on behalf of Party A holds such Collateral as agent and bailee for Party A and its affiliates which are secured parties hereunder and under any agreement between Party B and Party A or any of its affiliates. If an Event of Default hereunder shall occur, then each of Party A and its affiliates shall be entitled to retain or sell all Collateral as security for Party B's obligations, even if otherwise required pursuant to the terms of an agreement or otherwise to deliver any Collateral to Party B or Party B's order. The parties agree that Party A and its affiliates shall have the rights and remedies of a secured creditor under the New York Uniform Commercial Code (the "UCC") and under any other applicable law or agreement to exercise any right with respect to the Margin Collateral and the Collateral subject to the security interest granted under the Agreement. Notwithstanding Section 9-207 of the UCC, each of Party A or any of its affiliates shall have free and unrestricted use of any Margin Collateral and/or Collateral which it holds hereunder or with the Custodian, including, without limitation, the right, from time to time and without notice to Party B, to sell, pledge, repledge, hypothecate, rehypothecate, assign, invest, use, commingle or otherwise dispose of, or otherwise use in its business any Margin Collateral and/or Collateral separately or in common with other securities, commodities or other property, for the sum due to any of Party A or any of its affiliates or for a greater sum on terms which may otherwise impair the right of Party B to redeem such Margin Collateral and/or Collateral, and free from any other right of claim of any nature whatsoever of Party B, and without retaining possession and control for delivery a like amount of similar securities, commodities, or other property. (d) Party B represents and warrants that it owns the Margin Collateral and the Collateral to be pledged and assigned to each of Party A and its affiliates hereunder and under any other agreement between Party B and Party A or any of its affiliates, free and clear of any liens, equities, claims (including, without limitation, participation interests) and transfer restrictions. Party B covenants and agrees that it will not sell, assign, transfer, exchange or otherwise dispose of, or grant any option with respect to, any of the Margin Collateral or the Collateral, nor will it create, incur or permit to exist any lien on or with respect to any of the Margin Collateral or the Collateral, any interest therein, or any proceeds thereof, except for the security interests created under this Agreement or otherwise under any agreement between Party B and Party A or any of its affiliates. Any purported sale, assignment, transfer, exchange, disposition, grant or lien of the Margin Collateral or the Collateral by Party B that is not permitted under the foregoing sentence shall be null and void and shall constitute an Event of Default hereunder and under any agreement between Party B and Party A or any of its affiliates immediately prior to the taking of any such action, if 12 Party A so deems (it being understood that there shall be no grace period with respect to obligations of Party B pursuant to this Part XX). (e) Party B shall, at its sole expense and as Party A in its sole discretion may deem necessary or advisable from time to time, undertake all such action as is necessary, (i) to create, preserve, protect and perfect the security interests granted under the Agreement, (ii) to enable Party A to exercise and enforce its rights with respect to such security interests, and (iii) execute and deliver all documents and instruments in such manner and form as Party A may require, including without limitation UCC financing statements and continuation statements. Party B hereby appoints Party A as its true and lawful attorney-in-fact, including without limitation, to sign and file such documents and instruments on Party B's behalf and without Party B's signature; such appointment, being coupled with an interest, shall be irrevocable. Without limitation on the foregoing, Party B agrees to take such action as Party A in its sole discretion may deem necessary or advisable in the event of any change in applicable law, including, without limitation, Article 8 of the UCC and the Regulations of the Department of the Treasury governing transfers of interests in U.S. marketable treasury securities in book-entry form. (f) The parties hereto agree that each of the Account and any account in which any Collateral is held or to which any Collateral is credited (a "Collateral Account") is a "securities account" within the meaning of Article 8 of the UCC and that all property and assets (including, without limitation, cash) held in or credited to (i) the Account or (ii) any Collateral Account shall be treated as a "financial asset" for purposes of Article 8 of the UCC. MORGAN STANLEY & CO. INCORPORATED By /s/ ZOE CRUZ ------------------------------------------- Name: Zoe Cruz Title: Managing Director MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. BY: DEMETER MANAGEMENT CORPORATION /s/ ROBERT E. MURRAY - -------------------------------------------- Name: Robert E. Murray Title: President and Chairman 13 CUSTODIAN ACCOUNT ADDENDUM This Addendum supplements, forms part of, and is subject in all respects to, the Foreign Exchange and Options Master Agreement (FEOMA) including the Schedule thereto (the "Schedule") dated as of April 30, 2000 by and between Morgan Stanley & Co. Incorporated and Morgan Stanley Dean Witter Spectrum Select L.P. (collectively, the "Agreement"), and is a part of the Schedule with respect to each party; PROVIDED, HOWEVER, as used herein, "Pledgor" means Party B and "Secured Party" means Party A (as defined in the Agreement). Other capitalized terms used herein, unless otherwise defined, have the meanings specified in the Agreement. With respect to the rights or obligations of the Secured Party or the Pledgor, in the event of any inconsistencies between this Addendum and the Agreement, the Agreement will prevail. Having appointed Dean Witter Reynolds Inc. (the "Custodian") to hold Margin for and on behalf of the Secured Party, the Secured Party, the Pledgor and the Custodian (solely to the extent of the duties it has agreed to undertake and perform hereunder) agree as follows: 1. In all respects, the rights of the Secured Party under the Schedule with respect to Margin shall not be affected by the appointment of a Custodian hereunder. The provisions of this Addendum in no way diminish or otherwise affect the rights of the Secured Party under the Agreement. 2. The Secured Party, by written notice to the Custodian, may exercise all powers, and exercise any and all rights and remedies permitted under the Schedule as though the Secured Party was taking such action directly, and the Custodian will comply with, and be entitled to rely on, all such instructions (including, without limitation, entitlement orders) as if such instructions were provided by the parties jointly. 3. As used herein, the following terms have the following meaning: "Advice from the Secured Party" or "Advice" means a written notice sent to the Pledgor and/or the Custodian or transmitted by a facsimile sending device by any of those individuals designated by the Secured Party, except that for any of the following purposes it shall mean notice by telephone to a person designated by the Pledgor in writing as authorized to receive such advice or, in the event that no such person is available, to any officer of the Pledgor and confirmed promptly in writing thereafter: (i) for initial or additional Margin; (ii) that the Secured Party has issued a Notice of Exercise with respect to an Option ; or (iii) that the Pledgor has failed to give notice of intent to make payment of amounts or deliveries as required under Paragraph 5 of this Addendum. With respect to any covering purchase transaction, the Advice from the Secured Party shall mean a Confirmation in use by the Secured Party and sent or transmitted to the Pledgor and/or the Custodian. When used herein the term "Advise" means the act of sending an Advice from the Secured Party. 4. The Custodian shall open an account on its books entitled "Special Custody Account for Morgan Stanley & Co. Incorporated as Pledgee of Morgan Stanley Dean Witter Strategic Alternatives, L.L.C (referred to herein as the "Special Custody Account"). The parties hereto agree that all property and assets held in or credited to the Special Custody Account will be treated as financial assets under Article 8 of the Uniform Commercial Code as in effect in the State of New York (the "UCC"). The parties hereto further agree that the securities intermediary's jurisdiction, within the meaning of Section 8-110(e) of the UCC, in respect of the Special Custody Account and the Margin is the State of New York and agree that none of them has or will enter into any agreement to the contrary. Anything in this Addendum notwithstanding, the Custodian hereby agrees to comply with entitlement orders and other instructions of the Secured Party with respect to the Special Custody Account and any Margin without further consent of the Pledgor. The Pledgor hereby consents to such agreement. The Custodian represents and warrants that it has not, and agrees that it will not, agree to comply with entitlement orders concerning the Special Custody Account or any Margin that are originated by any person other than the Secured Party. The Pledgor agrees to inform the Custodian in writing that cash and securities specified by the Pledgor as qualifying as Margin and equal in value to the Aggregate Margin Requirement are to be identified on the Custodian's books and records as pledged to the Secured Party. The Custodian will hold the Margin in, and credit the Margin to, the Special Custody Account, separate and apart from any other property of the Pledgor that may be held by the Custodian, subject to the interest therein of the Secured Party as the Pledgee thereof in accordance with the terms of the Agreement. The Custodian continuously represents that Margin will not be subject to any other lien, charge, security interest or other right or claim of the Custodian or any person claiming through the Custodian. The Custodian will confirm in writing to the Secured Party and the Pledgor all pledges, releases, substitutions or distributions of Margin permitted under the Agreement, and will inform the Secured Party upon request of the kind and amount of Margin pledged to the Secured Party. 5. In the event that (i) the Secured Party advises the Pledgor in an Advice from the Secured Party that the Secured Party has exercised an Option sold by the Pledgor AND the Pledgor does not promptly notify the Secured Party by telephone of the Pledgor's intention to comply with the Notice of Exercise by making payment or delivery, as the case may be, as required under the terms of such Option plus payment of applicable commissions or other charges; OR (ii) the Pledgor, having received such Notice of Exercise, fails to make such payment or delivery, or cause such payment or delivery to be made, then the Secured Party will immediately notify the Pledgor in an Advice from the Secured Party of such failure to give telephone notice or failure to make payment or delivery, as applicable, and may, after transmittal of an Advice from the Secured Party of its intention to do so and only if the Pledgor does not promptly make payment or delivery to the Secured Party, direct the Custodian to take any action necessary to fully satisfy Pledgor's obligations to the Secured Party, including any of the Secured Party's rights and remedies under Part XX of the Schedule. 6. With respect to any losses or liabilities, the Custodian shall be protected in acting pursuant to any instructions from the Pledgor or Advices from the Secured Party believed by the Custodian in good faith to be genuine and authorized. The Pledgor agrees to indemnify the Custodian for, and hold it harmless against, any loss, liability or expense incurred by the Custodian, without negligence or bad faith on the part of the Custodian, arising out of this Addendum. 7. The Secured Party shall not be liable for any losses, costs, damages, liabilities or expenses suffered or incurred by the Pledgor as a result of any actions taken under this Addendum, or any other action taken or not taken by the Secured Party hereunder for the Pledgor's account at the Pledgor's direction or otherwise, except to the extent that such loss, cost, damage, liability or expense is the result of the Secured Party's own recklessness, willful misconduct or bad faith. 8. The Pledgor continuously represents and warrants to the Secured Party that securities included at any time in the Margin shall be in good deliverable form (or Custodian shall have the unrestricted power to put such securities into good deliverable form) in accordance with the requirements of such exchanges as may be the primary market or markets for such securities. Each of the Pledgor, the Secured Party and the Custodian continuously represents and warrants that: a) it has duly executed and delivered this Addendum, and has all requisite power, authority and approvals to enter into and perform its obligations hereunder; and b) this Addendum is its valid and legally binding obligation, enforceable against it in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles. The Secured Party and the Pledgor hereby acknowledge that the Custodian holds securities and cash as custodian for its customers through sub-custodians, depositaries and deposit-taking banks which maintain omnibus 2 accounts on behalf of customers of the Custodian. Securities held in the Special Custody Account may be held at the Depository Trust Company or other book-entry depository systems in the account of the Custodian, save that Margin denominated in currencies other than US Dollars may be held by a sub-custodian for the Custodian other than in book-entry form. U.S. Treasury securities shall be held in a Treasury/Reserve Automated Debt Entry System ("TRADES") Participant's securities account of the Custodian or of the Custodian's sub-custodian for the account of the Custodian at the Federal Reserve Bank. 9. A monthly statement will be provided by the Custodian to the Secured Party and the Pledgor listing all Margin held in the Special Custody Account. The Custodian will also advise the Secured Party upon request, at any time, of the kind and amount of Margin pledged to the Secured Party. It is agreed that, notwithstanding any language to the contrary in Custodian's form of confirmation, the Custodian holds the Margin as agent of the Secured Party as pledgee hereunder, not as escrow agent. The Custodian makes no representations as to the existence, perfection or enforceability of any security interest, charge, lien or other rights of the Pledgor in or to the Margin. 10. The Pledgor shall pay the Custodian as compensation for its services pursuant to this Addendum such compensation as may from time to time be agreed upon in writing between the Pledgor and the Custodian. 11. No amendment to this Addendum shall be effective unless in writing and signed by an authorized officer of each of the Secured Party, the Pledgor, and the Custodian. 12. This Addendum may be executed in one or more counterparts, all of which together shall constitute but one and the same instrument. 13. Any of the parties hereto may terminate the custodial relationship by notice, given at least 10 business days prior to the date of such intended termination, in writing to the other parties hereto; provided, however, that should the Custodian or the Pledgor seek to terminate, then the Pledgor must designate a replacement Custodian, which the Secured Party has, in the exercise of its sole discretion, approved. Custodian agrees to remain as the Custodian until such time as a replacement Custodian has been approved and such replacement Custodian has agreed to the terms of its service hereunder and under the Agreement. 3 Written communications hereunder shall be sent in the manner specified in the Agreement addressed: (a) If to Custodian, to: Dean Witter Reynolds Inc. 2 World Trade Center New York, New York 10048 Attention: Robert E. Murray - Managed Futures Department Phone: 212-392-7404 Fax: 212-392-2804 (b) If to the Pledgor, to: Demeter Management Corporation 2 World Trade Center 62nd Floor New York, New York 10048 Attention: Robert E. Murray Phone: 212-392-7404 Fax: 212-392-1306 (c) If to the Secured Party, to: Morgan Stanley & Co. Incorporated 1585 Broadway 4th floor New York, New York 10036 Attention: Foreign Exchange Trading Desk Phone: (212) 761-2700 Fax: (212) 761-0296 14. This Addendum will be governed by the laws of the State of New York applicable to transactions entered into and to be performed wholly within the State of New York. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. By: DEMETER MANAGEMENT CORPORATION /s/ ROBERT E. MURRAY -------------------------------------------------- Name: Robert E. Murray Title: President and Chairman MORGAN STANLEY & CO. INCORPORATED /s/ ZOE CRUZ ------------------------------------------- Name: Zoe Cruz Title: Managing Director DEAN WITTER REYNOLDS INC. (FOR PURPOSES OF THIS ADDENDUM) By: /s/ ROBERT E. MURRAY ----------------------------------------------- Name: Robert E. Murray Title: Senior Vice President 4 EX-10.16 6 a2041380zex-10_16.txt EXHIBIT 10.16 Exhibit 10.16 FORM OF MANAGEMENT AGREEMENT THIS AGREEMENT, made as of the 1st day of June, 2001 among MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P., a Delaware limited partnership (the "Partnership"), DEMETER MANAGEMENT CORPORATION, a Delaware corporation (the "General Partner"), and NORTHFIELD TRADING L.P., a Delaware corporation (the "Trading Advisor"). WITNESSETH: WHEREAS, the Partnership has been organized pursuant to the Limited Partnership Agreement dated as of March 21, 1991, as amended and restated as of August 31, 1993, October 17, 1996, May 31, 1998, and February 28, 2000, (the "Limited Partnership Agreement"), to trade, buy, sell, spread, or otherwise acquire, hold, or dispose of commodities (including, but not limited to, foreign currencies, mortgage-backed securities, money market instruments, financial instruments, and any other securities or items which are now or may hereafter be the subject of futures contract trading), domestic and foreign commodity futures contracts, commodity forward contracts, foreign exchange commitments, options on physical commodities and on futures contracts, spot (cash) commodities and currencies, and any rights pertaining thereto (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 became a member partnership of the Morgan Stanley 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 are 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 as it may be amended from time to time (the "Registration Statement") and a final Prospectus, constituting a part thereof as it may be amended and supplemented from time to time (the "Prospectus"), and thereafter, pursuant to which such Units can be exchanged by 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 (as defined in Section 7(d)(2) of the Limited Partnership Agreement) thereof; WHEREAS, the Trading Advisor 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 Advisor to act as a trading advisor for the Partnership and to make investment decisions with respect to futures interests for its allocated share of the Partnership's Net Assets (as defined in Section 6(c) hereof) and the Trading Advisor desires so to act; and WHEREAS, the Partnership, the General Partner and the Trading Advisor wish to enter into this Management Agreement which, among other things, sets forth certain terms and conditions upon which the Trading Advisor will conduct a portion of the Partnership's futures interests trading; NOW THEREFORE, the parties hereto hereby agree as follows: 1. UNDERTAKINGS IN CONNECTION WITH THE CONTINUING OFFERING OF UNITS. (a) The Trading Advisor 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 programs, systems, methods, and strategies (subject to the need, in the reasonable discretion of the Trading Advisor, to preserve the confidentiality of proprietary information concerning such programs, 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, the General Partner, and Dean Witter Reynolds Inc., the selling agent for the Partnership ("DWR") by providing information regarding the Trading Advisor 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 Advisor. (b) If, while Units continue to be offered and sold, the Trading Advisor 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, the Trading Advisor 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 Advisor 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 ADVISOR. (a) The Trading Advisor hereby agrees to act as a Trading Advisor for the Partnership and, as such, shall have sole authority and responsibility for directing the investment and reinvestment of 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 the Prospectus or as otherwise provided in writing and consented to by the Trading Advisor; PROVIDED, HOWEVER, that the General Partner may override the instructions of the Trading Advisor to the extent necessary (i) to comply with the trading policies of the Partnership and with applicable speculative position limits, (ii) to fund any distributions, redemptions, or reapportionments among other trading advisors to the Partnership, (iii) to pay the Partnership's expenses, (iv) to the extent the General Partner believes doing so is necessary for the protection of the Partnership, (v) to terminate the futures interests trading of the Partnership, or (vi) to comply with any applicable law 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 Advisor fails to comply with a request of the General Partner to make the necessary amount of funds available to the Partnership within five calendar days of such request. The Trading Advisor shall not be liable for the consequences of any decision by the General Partner to override instructions of the Trading Advisor, except to the extent that the Trading Advisor is in breach of this Agreement. In performing services to the Partnership the Trading Advisor may not materially alter the trading program(s) used by the Trading Advisor 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 or markets traded shall not be deemed an alteration in the Trading Advisor's trading program(s). (b) The Trading Advisor shall: (i) Exercise good faith and due care in trading futures interests for the account of the Partnership in accordance with the prohibitions and trading policies of the Partnership described in the Prospectus, Exhibit A hereto, and as otherwise provided in writing and consented to by the Trading Advisor and the trading programs, systems, methods, and strategies of the Trading Advisor described in the Prospectus, with such changes and additions to such trading programs, systems, methods or strategies as the Trading Advisor, from time to time, incorporates into its trading programs 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 reasonable request therefor by the General Partner, with information comparing the performance of the Partnership's account and the performance of all other client accounts directed by the Trading Advisor using the trading programs used by the Trading Advisor for the Partnership over a specified period of time. In providing such information, the Trading Advisor may take such steps as are necessary to assure the confidentiality of the Trading Advisor's clients' identities. The Trading Advisor shall, upon the General Partner's reasonable request, consult with the General Partner concerning any discrepancies between the performance of such other accounts and the Partnership's account. The Trading Advisor shall promptly inform the General Partner of any material discrepancies of which the Trading Advisor is aware. The General Partner acknowledges that different trading programs, strategies or implementation methods may be utilized for different accounts, accounts with different trading policies, accounts experiencing differing inflows or outflows of equity, accounts that 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 the reasonable request of the General Partner and subject to reasonable assurances of confidentiality by the General Partner and the Partnership, provide the General Partner with all material information concerning the Trading Advisor other than proprietary information (including, without limitation, information relating to changes in control, personnel, trading approach, or financial condition). The General Partner acknowledges that all trading instructions made by the Trading Advisor will be held in confidence by the General Partner, except to the extent necessary to conduct the business of the Partnership or as required by law. (iv) Inform the General Partner when the Trading Advisor's open positions maintained by the Trading Advisor exceed the Trading Advisor's applicable speculative position limits. (c) All purchases and sales of futures interests pursuant to this Agreement shall be for the account, and at the risk, of the Partnership and not for the account, or at the risk, of the Trading Advisor or any of its stockholders, directors, officers, or employees, or any other person, if any, who controls the Trading Advisor within the meaning of the Securities Act. All brokerage fees arising from trading by the Trading Advisor shall be for the account of the Partnership. The Trading Advisor makes no representations as to whether its trading will produce profits or avoid losses. (d) Notwithstanding anything in this Agreement to the contrary, the Trading Advisor shall assume financial responsibility for any errors committed or caused by it in transmitting orders for the purchase or sale of futures interests for the Partnership's account, including 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 Advisor's errors shall include, but not be limited to, inputting improper trading signals or communicating incorrect orders for execution. However, the Trading Advisor shall not be responsible for errors committed or caused by DWR or by floor brokers or other futures commission merchants. The Trading Advisor shall have an affirmative obligation promptly to notify the General Partner of its own errors, and the Trading Advisor shall use its best efforts to identify and promptly notify the General Partner of any order or trade which the Trading Advisor reasonably believes was not executed in accordance with its instructions. (e) Prior to the commencement of trading, the General Partner on behalf of the Partnership shall deliver to the Trading Advisor a trading authorization appointing the Trading Advisor the Partnership's attorney-in-fact for such purpose. 3. DESIGNATION OF ADDITIONAL TRADING ADVISORS AND REALLOCATION OF NET ASSETS. (a) If the General Partner at any time deems it to be in the best interests of the Partnership, the General Partner may designate an additional trading advisor or advisors for the Partnership and may apportion to such additional trading advisor(s) the management of such amounts of Net Assets as the General Partner shall determine in its absolute discretion. The designation of an additional trading advisor or advisors and the apportionment of Net Assets to any such trading advisor(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 Advisor hereunder. In the event that an additional trading advisor or advisors is so designated, the Trading Advisor shall thereafter receive management and incentive fees based, respectively, on that portion of the Net Assets managed by the Trading Advisor and the Trading Profits attributable to the trading by the Trading Advisor. (b) The General Partner may at any time and from time to time upon two business days' prior notice reallocate Net Assets allocated to the Trading Advisor to any other trading advisor or advisors of the Partnership or allocate additional Net Assets upon two business days' prior notice to the Trading Advisor from such other trading advisor or advisors; provided that any such addition to or withdrawal from Net Assets allocated to the Trading Advisor 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 ADVISOR INDEPENDENT. For all purposes of this Agreement, the Trading Advisor shall be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized, have no authority to act for or represent the Partnership in any way or otherwise be deemed an agent of the Partnership. Nothing contained herein shall be deemed to require the Partnership to take any action contrary to the Limited Partnership Agreement, the Certificate of Limited Partnership of the Partnership as from time to time in effect (the "Certificate of Limited Partnership"), or any applicable law or rule or regulation of any regulatory body, exchange, or board. Nothing herein contained shall constitute the Trading Advisor or any other trading advisor or advisors 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 Advisor is neither a promoter, sponsor, or issuer with respect to the Partnership, nor does the Trading Advisor have any authority or responsibility with respect to the sale or issuance of Units. 5. COMMODITY BROKER. The Trading Advisor 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, DWR shall act as non-clearing commodity broker and Morgan Stanley & Co. Incorporated ("MS & Co."), an affiliate of the general partner, shall act as the clearing commodity broker for the Partnership, with the exception of trades on the London Metal Exchange which will be cleared by Morgan Stanley & Co. International Limited ("MSIL"), also an affiliate of the general partner. In addition, MS & Co. will act as the counterparty on all of the foreign currency forward trades for the Partnership. The General Partner shall provide the Trading Advisor with copies of brokerage statements. Notwithstanding that MS & Co. and MSIL shall act as the clearing commodity brokers for the Partnership, the Trading Advisor may execute trades through floor brokers other than those employed by MS & Co. and MSIL so long as arrangements are made for such floor brokers to "give-up" or transfer the positions to MS & Co. or MSIL and provided that the rates charged by such floor brokers have been approved in writing by DWR. The Trading Advisor will not be responsible for paying give-up fees. 6. FEES. (a) For the services to be rendered to the Partnership by the Trading Advisor under this Agreement, the Partnership shall pay the Trading Advisor the following fees: (i) A monthly management fee, without regard to the profitability of the Trading Advisor's trading for the Partnership's account, equal to 1/12 of 3% (a 3% annual rate) of the "Net Assets" of the Partnership allocated to the Trading Advisor (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 advisors(s) of the Partnership. (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 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 Advisor, or, as a result of an act or material failure to act by the Trading Advisor, is otherwise unable to utilize the trading advice of the Trading Advisor 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 Advisor engaged in trading operations or utilized the trading advice of the Trading Advisor to the total number of trading days in the month. (c) As used herein, the term "Net Assets" shall have the same meaning ascribed thereto in Section 7(d)(1) of the Limited Partnership Agreement. (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 Advisor, decreased by the Trading Advisor's monthly management fees and a pro rata portion of the monthly brokerage fee relating to the Trading Advisor's allocated Net Assets; with such trading profits and items of decrease determined from the end of the last calendar month in which an incentive fee was earned by the Trading Advisor or, if no incentive fee has been earned previously by the Trading Advisor, from the date that the Partnership commenced trading to the end of the month as of which such incentive fee calculation is being made. No incentive fee will be paid on interest income earned by the Partnership. (e) If any payment of incentive fees is made to the Trading Advisor on account of Trading Profits earned by the Partnership on Net Assets allocated to the Trading Advisor 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 Advisor shall be entitled to retain such amounts of incentive fees previously paid to the Trading Advisor in respect of such Trading Profits. However, no subsequent incentive fees shall be payable to the Trading Advisor until the Partnership has again earned Trading Profits on the Trading Advisor's allocated Net Assets; PROVIDED, HOWEVER, that if the Trading Advisor's allocated Net Assets are reduced or increased because of redemptions, additions or reallocations that 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 Advisor, the trading loss for that incentive period which must be recovered before the Trading Advisor's allocated Net Assets will be deemed to experience Trading Profits will be equal to the amount determined by (x) dividing the Trading Advisor's allocated Net Assets after such increase or decrease by the Trading Advisor'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 Advisor'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 advisors to the Partnership shall be in the sole discretion of the General Partner. 7. TERM. This Agreement shall continue in effect until May 31, 2004 (the "Initial Termination Date"). If this Agreement is not terminated on the Initial Termination Date, as provided for herein, then, 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 the Initial Termination Date or any subsequent one-year period, as the case may be, the Trading Advisor may terminate this Agreement at the end of the current period by providing written notice to the Partnership indicating that the Trading Advisor desires to terminate this Agreement at the end of such period. This Agreement shall also terminate if the Partnership terminates. The Partnership shall have the right to terminate this Agreement at its discretion (a) at any month end upon five calendar days' prior written notice to the Trading Advisor or (b) at any time upon written notice to the Trading Advisor upon the occurrence of any of the following events: (i) if any person described as a "principal" of the Trading Advisor in the Prospectus ceases for any reason to be an active executive officer of the Trading Advisor; (ii) if the Trading Advisor becomes bankrupt or insolvent; (iii) if the Trading Advisor is unable to use its trading programs, 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 Advisor with the CFTC or its membership in the NFA is revoked, suspended, terminated, or not renewed, or limited or qualified in any respect; (v) except as provided in Section 12 hereof, if the Trading Advisor merges or consolidates with, or sells or otherwise transfers its advisory business, or all or a substantial portion of its assets, any portion of its futures interests trading programs, systems or methods, or its goodwill to, any individual or entity; (vi) if the Trading Advisor'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 Advisor fall below $5,000,000.00 at any time; (vii) if, at any time, the Trading Advisor violates any trading or administrative policy described in writing to the Trading Advisor by the General Partner, except with the prior express written consent of the General Partner; or (viii) if the Trading Advisor fails in a material manner to perform any of its obligations under this Agreement. The Trading Advisor may terminate this Agreement at any time, upon written notice to the Partnership, in the event: (i) that the General Partner imposes additional trading limitation(s) in the form of one or more trading policies or administrative policies which the Trading Advisor does not agree to follow in its management of its allocable share of the Partnership's Net Assets; (ii) the General Partner objects to the Trading Advisor implementing a proposed material change in the Trading Advisor's trading program(s) used by the Partnership and the Trading Advisor certifies to the General Partner in writing that it believes such change is in the best interests of the Partnership; (iii) the General Partner overrides a trading instruction of the Trading Advisor for reasons unrelated to a determination by the General Partner that the Trading Advisor has violated the Partnership's trading policies and the Trading Advisor certifies to the General Partner in writing that as a result, the Trading Advisor believes the performance results of the Trading Advisor relating to the Partnership will be materially adversely affected; (iv) the Partnership materially breaches this Agreement and does not correct the breach within 10 business days of receipt of a written notice of such breach from the Trading Advisor; or (v) the Trading Advisor 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 Advisor's trading such contract for the Partnership within five business days of a written request by the Trading Advisor to do so, and, if such consent is given, does not make arrangements to facilitate such trading within 90 days of such notice. In addition, the Trading Advisor may terminate this Agreement by providing 30 days prior written notice to the General Partner if the Partnership's Net Assets allocated to the Trading Advisor fall below $5,000,000 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 ADVISOR LIABILITY. In respect of the Trading Advisor's role in the futures interests trading of the Partnership's assets, none of the Trading Advisor, or its controlling persons, its affiliates, and their respective directors, officers, shareholders, employees or controlling persons shall be liable to the Partnership or the General Partner or their partners, officers, shareholders, directors or controlling persons except that the Trading Advisor shall be liable for acts or omissions of any such person provided that such act or omission constitutes a breach of this Agreement or a representation, warranty or covenant herein, misconduct or negligence or is the result of any such person not having acted in good faith and in the reasonable belief that such actions or omissions were in, or not opposed to, the best interests of the Partnership. (b) TRADING ADVISOR INDEMNITY IN RESPECT OF MANAGEMENT ACTIVITIES. The Trading Advisor shall indemnify, defend and hold harmless the Partnership and the General Partner, their controlling persons, their affiliates and their respective directors, officers, shareholders, employees, and controlling persons from and against any and all losses, claims, damages, liabilities (joint and several), costs, and expenses (including any reasonable investigatory, legal, and other expenses incurred in connection with, and any amounts paid in, any settlement; provided that the Trading Advisor shall have approved such settlement) incurred as a result of any action or omission involving the Partnership's futures interests trading of the Trading Advisor, 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 Advisor, or any of its controlling persons or affiliates or their respective directors, officers, partners, shareholders, or employees which is found by a court of competent jurisdiction upon entry of a final judgment (or, if no final judgment is entered, by an opinion rendered by counsel who is approved by the Partnership and the Trading Advisor, such approval not to be unreasonably withheld) to be a breach of this Agreement 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 INDEMNITY IN RESPECT OF MANAGEMENT Activities. The Partnership shall indemnify, defend, and hold harmless the Trading Advisor, its controlling persons, their affiliates and their respective directors, officers, shareholders, employees, and controlling persons, from and against any and all losses, claims, damages, liabilities (joint and several), costs, and expenses (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 Advisor; PROVIDED that a court of competent jurisdiction upon entry of a final judgment finds (or, if no final judgment is entered, an opinion is rendered to the 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 Advisor 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 ADVISOR INDEMNITY IN RESPECT OF SALE OF UNITS. The Trading Advisor shall indemnify, defend and hold harmless DWR, MS & Co., MSIL, the Partnership, the General Partner, any additional seller, and their affiliates and each of their officers, directors, principals, shareholders, 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 Exchange Act of 1934, as amended (the "Exchange Act") the Commodity Exchange Act, as amended, and rules promulgated thereunder (the "CEAct"), 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 Advisor shall have approved such settlement, and in connection with any administrative proceedings), in respect of the offer or sale of Units, insofar as such loss, claim, damage, liability, cost, or expense (or action in respect thereof) arises out of, or is based upon: (i) a breach by the Trading Advisor of any representation, warranty, or agreement in this Agreement or any certificate delivered pursuant to this Agreement or the failure by the Trading Advisor to perform any covenant made by the Trading Advisor herein; (ii) a breach of the disclosure requirements under the CEAct or NFA Rules that relate to the Trading Advisor and the Trading Advisor Principals; (iii) a misleading or untrue statement or alleged misleading or untrue statement of a material fact made in the Registration Statement, the Prospectus, or any related selling material or an omission or alleged omission to state a material fact therein which is required to be stated therein or necessary to make the statements therein (in the case of the Prospectus and any selling material, in light of the circumstances under which they were made) not misleading, and such statement or omission relates specifically to the Trading Advisor, or its Trading Advisor Principals (as defined in Section 10(a)(iv) below) (including the historical performance capsules) or was made in reliance upon, and in conformity with, written information or instructions furnished by the Trading Advisor (PROVIDED, HOWEVER, that with respect to any related selling material only such related selling material as shall have been approved in writing by the Trading Advisor). (e) PARTNERSHIP INDEMNITY IN RESPECT OF SALE OF UNITS. The Partnership agrees to indemnify, defend and hold harmless the Trading Advisor and each of its officers, directors, principals, shareholders, 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 Exchange Act, the CEAct, 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 Partnership or the General Partner of any representation, warranty, or agreement in this Agreement or the failure by the Partnership or the General Partner to perform any covenant made by them herein; or (ii) a misleading or untrue statement or alleged misleading or untrue statement of a material fact made in the Registration Statement, the Prospectus, or any related selling material or an omission or alleged omission to state a material fact therein which is required to be stated therein or necessary to make the statements therein (in the case of the Prospectus or the selling material, in light of the circumstances under which they were made) not misleading, provided that such materially misleading or untrue statement or alleged materially misleading or untrue statement or omission or alleged omission does not relate to the Trading Advisor or its Trading Advisor Principals (including the historical performance capsules) or was not made in reliance upon, and in conformity with, information or instructions furnished by the Trading Advisor (PROVIDED, HOWEVER, that with respect to any related selling material, only such related selling material as shall have been approved in writing by the Trading Advisor), or does not result from a breach by the Trading Advisor of any representation, warranty, or agreement in this Agreement or any certificate delivered pursuant to this Agreement or the failure by the Trading Advisor to materially perform any covenant made in this Agreement. (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 Advisor is engaged in the business of advising investors as to the purchase and sale of futures interests. During the term of this Agreement, the Trading Advisor, its principals and affiliates, will be advising other investors (including affiliates and the stockholders, officers, directors, and employees of the Trading Advisor and its affiliates and their families) and trading for their own accounts. However, under no circumstances shall the Trading Advisor by any act or omission favor any account advised or managed by the Trading Advisor over the account of the Partnership in any way or manner (other than by charging different management and/or incentive fees). The Trading Advisor agrees to treat the Partnership in a fiduciary capacity to the extent recognized by applicable law, but, subject to that standard, the Trading Advisor or any of its principals or affiliates shall be free to advise and manage accounts for other investors and shall be free to trade on the basis of the same trading programs, systems, methods, or strategies employed by the Trading Advisor for the account of the Partnership, or trading programs, 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 Advisor shall not be restricted as to the number or nature of its clients, except that: (i) so long as the Trading Advisor acts as a trading advisor for the Partnership, neither the Trading Advisor nor any of its principals or affiliates shall hold knowingly any position or control any other account which would cause the Partnership, the Trading Advisor, or the principals or affiliates of the Trading Advisor to be in violation of the CEAct 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 Advisor 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 Advisor under the rules or regulations of the CFTC or any other regulatory body, exchange, or board so as to require the significant modification of positions taken or intended for the account of the Partnership; provided that the Trading Advisor may modify its trading programs, systems, methods or strategies to accommodate the trading of additional funds or accounts. If applicable speculative position limits are exceeded by the Trading Advisor in the opinion of (i) independent counsel (who shall be other than counsel to the Partnership), (ii) the CFTC, or (iii) any other regulatory body, exchange, or board, the Trading Advisor and its principals and affiliates shall promptly liquidate positions in all of their accounts, including the Partnership's account, as to which positions are attributed to the Trading Advisor as nearly as possible in proportion to the accounts' respective amounts available for trading (taking into account different degrees of leverage and "notional" equity) to the extent necessary to comply with the applicable position limits. 10. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE TRADING ADVISOR. (a) REPRESENTATIONS OF THE TRADING ADVISOR. The Trading Advisor with respect to itself and each of its principals represents and warrants to and agrees with the General Partner and the Partnership as follows: (i) 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 Advisor shall follow, at all times, the trading policies of the Partnership (as described in the Prospectus and as set forth in Exhibit A hereto) and as amended in writing and furnished to the Trading Advisor from time to time, provided, that the General Partner has notified the Trading Advisor of these trading policies and the Trading Advisor has consented thereto. (iii) The Trading Advisor 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 MS & Co., and such other futures interests which are approved in writing by the General Partner. (iv) The Trading Advisor is duly organized, validly existing and in good standing as a limited partnership under the laws of the state of its formation and is qualified to do business and is in good standing in each other jurisdiction in which the nature or conduct of its business requires such qualification and the failure to so qualify would materially adversely affect the Trading Advisor's ability to perform its duties under this Agreement. The Trading Advisor 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 CEAct) of the Trading Advisor are those set forth in the Prospectus (the "Trading Advisor Principals"). (v) All references to the Trading Advisor and each Trading Advisor Principal, including the Trading Advisor's trading programs, approaches, systems and performance, in the Registration Statement and the Prospectus, and in the supplemental selling material which has been approved in writing by the Trading Advisor, are accurate and complete in all material respects. With respect to the material relating to the Trading Advisor and each Trading Advisor Principal, including the Trading Advisor's and the Trading Advisor Principals' trading programs, 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 CEAct, (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 Advisor and is a valid and binding agreement of the Trading Advisor enforceable in accordance with its terms. (vii) Each of the Trading Advisor and each "principal" of the Trading Advisor, as defined in Rule 3.1 under the CEAct, has all federal and state governmental, regulatory and exchange licenses, registrations and approvals and has effected all filings 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 Advisor is registered as a commodity trading advisor under the CEAct 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 limited partnership or the limited partnership agreement of the Trading Advisor or any agreement or instrument by which it is bound or of any order, rule, law or regulation binding on it of any court or any governmental body or administrative agency or panel or self-regulatory organization having jurisdiction over it. (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 Advisor or any Trading Advisor 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 Advisor's knowledge threatened, any action, suit or proceeding before or by any court or other governmental body to which the Trading Advisor or any Trading Advisor Principal is or was a party, or to which any of the assets of the Trading Advisor is or was subject and which resulted in or might reasonably be expected to result in any material adverse change in the condition, financial or otherwise, business or prospects of the Trading Advisor or which is required under the Securities Act or CEAct to be disclosed in the Prospectus. Neither the Trading Advisor nor any Trading Advisor Principal has received any notice of an investigation by the NFA nor the CFTC regarding noncompliance by the Trading Advisor or any of the Trading Advisor Principals with the CEAct. (xi) Neither the Trading Advisor nor any Trading Advisor Principal has received, or is entitled to receive, directly or indirectly, any commission, finder's fee, similar fee, or rebate from any person in connection with the organization or operation of the Partnership, other than as described in the Prospectus. (xii) The actual performance of each discretionary account of a client directed by the Trading Advisor and the Trading Advisor 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 the CEAct disclosure requirements); all of the information regarding the actual performance of the accounts of the Trading Advisor and the Trading Advisor 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 CEAct and the Securities Act, including the Division of Trading and Markets "notional equity" advisories and interpretations and the rules and regulations of the NFA. (b) COVENANTS OF THE TRADING ADVISOR. The Trading Advisor covenants and agrees that: (i) The Trading Advisor shall use its best efforts to maintain all registrations and memberships necessary for the Trading Advisor to continue to act as described herein and to at all times comply in all material respects with all applicable laws, rules, and regulations, to the extent that the failure to so comply would have a materially adverse effect on the Trading Advisor's ability to act as described herein. (ii) The Trading Advisor shall inform the General Partner immediately as soon as the Trading Advisor or any of its principals becomes the subject of any investigation, claim or proceeding of any regulatory authority having jurisdiction over such person or becomes a named party to any litigation materially affecting the business of the Trading Advisor. The Trading Advisor shall also inform the General Partner immediately if the Trading Advisor or any of its officers becomes aware of any breach of this Agreement by the Trading Advisor. (iii) The Trading Advisor 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. (iv) The Trading Advisor agrees to participate, to the extent that the General Partner may reasonably request, in "road shows" and other promotional activities relating to the marketing of the Units, provided that such participation shall not in the reasonable judgment of the Trading Advisor require the registration of the Trading Advisor or any of its principals or agents as a broker-dealer or salesman or interfere materially with the trading activities of the Trading Advisor. The Trading Advisor shall pay the costs of its reasonably requested participation in such road shows. 11. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE GENERAL PARTNER AND THE PARTNERSHIP. (a) REPRESENTATIONS OF THE PARTNERSHIP AND THE GENERAL PARTNER. The General Partner and the Partnership represent and warrant to the Trading Advisor, as follows: (i) The Partnership has provided to the Trading Advisor, and filed with the SEC, the Registration Statement and has filed copies thereof with: (i) the CFTC under the CEAct; (ii) the NASD pursuant to its Conduct Rules; 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 Advisor 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) will have been taken; and, upon payment of the consideration therefor specified in each accepted Subscription and Exchange Agreement and Power of Attorney, in such form as attached to the Prospectus, 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 CEAct. When the Registration Statement becomes effective under the Securities 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 Securities Act, the rules and regulations promulgated thereunder (the "SEC Regulations"), the rules of the NFA and the CEAct. 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 selling material, 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 selling material will comply with the CEAct and the regulations and rules of the NFA and NASD. The representation, and warranties in this clause (vi) shall not, however, apply to any statement or omission in the Registration Statement, Prospectus or supplemental selling material relating to the Trading Advisor, or its Trading Advisor Principals or its trading programs or made in reliance upon and in conformity with information furnished by the Trading Advisor. (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 constitutes a valid, binding and enforceable agreement of the Partnership in accordance with its terms. (ix) The execution and delivery of this Agreement, the incurrence of the obligations set forth herein and the consummation of the transactions contemplated herein 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 1 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 which resulted in or might reasonably be expected to result in any materially adverse change in the condition, financial or otherwise, of the General Partner or the Partnership or which is required under the Securities Act or the CEAct to be disclosed in the Prospectus; and neither the General Partner nor any of the principals of the General Partner, as "principals" is defined under Rule 4.10 under the CEAct ("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 CEAct or the Securities Act which is required under the Securities Act or the CEAct to be disclosed in the Prospectus. (xi) The General Partner and each principal of the General Partner, as defined in Rule 3.1 under the CEAct, have all federal and state governmental, regulatory and exchange approvals, registrations, and licenses, and have effected all filings with federal and state governmental agencies and regulatory 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 CEAct 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 AND THE PARTNERSHIP. The General Partner covenants and agrees that: (i) The General Partner shall use its best efforts to maintain all registrations and memberships necessary for the General Partner to continue to act as described herein and in the Prospectus and to all times comply in all material respects with all applicable laws, rules, and regulations, to the extent that the failure to so comply would have a materially adverse effect on the General Partner's ability to act as described herein and in the Prospectus. (ii) The General Partner shall inform the Trading Advisor immediately as soon as the General Partner or any of its principals becomes the subject of any investigation, claim, or proceeding of any regulatory authority having jurisdiction over such person or becomes a named party to any litigation materially affecting the business of the General Partner. The General Partner shall also inform the Trading Advisor immediately if the General Partner or any of its officers become aware of any breach of this Agreement by the General Partner. (iii) The Partnership will furnish to the Trading Advisor copies of the Registration Statement, the Prospectus, and all amendments and supplements thereto, in each case as soon as available. 12. MERGER OR TRANSFER OF ASSETS OF TRADING ADVISOR. The Trading Advisor may merge or consolidate with, or sell or otherwise transfer its advisory business, or all or a substantial portion of its assets, any portion of its commodity trading programs, systems or methods, or its goodwill, to any entity that is directly or indirectly controlled by, controlling, or under common control with, the Trading Advisor, provided that such entity expressly assumes all obligations of the Trading Advisor under this Agreement and agrees to continue to operate the business of the Trading Advisor, substantially as such business is being conducted on the date hereof. 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 Advisor shall, at the Partnership's first Monthly Closing (as defined in the Prospectus), following the effective date of the Registration Statement and at the request of the General Partner at any Monthly Closing, 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 Advisor in this Agreement are true, accurate, and complete on and as of the date of the closing, as if made on the date of the closing. (ii) The Trading Advisor has performed all of its obligations and satisfied all of the conditions on its part to be performed or satisfied under this Agreement, 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 Advisor, in form and substance satisfactory to such parties, to the effect that: (i) The Trading Advisor is a limited partnership duly formed and validly existing under the laws of the State of Delaware 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 Advisor's ability to perform its obligations under this Agreement. The Trading Advisor has full 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 Advisor (including the Trading Advisor Principals) has all governmental, regulatory, self-regulatory and commodity exchange and clearing association licenses, registrations, and memberships required by law, and the Trading Advisor (including the Trading Advisor Principals) has made all filings 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 this Agreement, 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 Advisor and constitutes a valid and binding agreement of the Trading Advisor enforceable in accordance with its terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability generally of rights of creditors and by general 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 this Agreement 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 Advisor, to the best of such counsel's knowledge, except as disclosed in the Prospectus, there are no material actions, suits or proceedings at law or in equity either threatened or pending in any court or before or by any governmental or administrative body nor have there been any such actions, suits or proceedings at any time within the five years preceding the date of the Prospectus against the Trading Advisor or any Trading Advisor 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 limited partnership or limited partnership agreement of the Trading Advisor and, based upon due inquiry of certain officers of the Trading Advisor, 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 Advisor is bound and will not violate any order, law, rule or regulation applicable to the Trading Advisor of any court or any governmental body or administrative agency or panel or self-regulatory organization having jurisdiction over the Trading Advisor. (vi) Based upon reliance of certain SEC "no-action" letters, as of the closing, the performance by the Trading Advisor of the transactions contemplated by this Agreement and as described in the Prospectus will not require the Trading Advisor to be registered as an "investment adviser" as that term is defined in the Investment Advisers Act of 1940, as amended. (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 Advisor and the Trading Advisor Principals are concerned, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (B) the Prospectus at the time it was issued or at the closing contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein relating to the Trading Advisor or the Trading Advisor Principals, in light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that such counsel need express no opinion or belief as to the 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 Advisor 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 Advisor, 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 Advisor's knowledge, accurate in all material respects. (2) The General Partner shall, at the Partnership's first Monthly Closing following the effective date of the Registration Statement, provide the following: (a) To the Trading Advisor a certificate, dated the date of such closing and in form and substance satisfactory to the Trading Advisor, 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 Securities 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 Securities Act or the CEAct. (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, 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 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, each of its principals as defined in Rule 3.1 under the CEAct, and the Partnership have all federal and state governmental and regulatory licenses, registrations and memberships required by law and have made all filings 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 the ability of the Partnership or the General Partner 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 principals of equity (regardless of 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 set forth and the consummation of the transactions contemplated herein 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 known to such counsel or any law, rule or regulation applicable to the General Partner or the Partnership of any court, governmental body, administrative agency, panel or self-regulatory organization having jurisdiction over the General Partner or the Partnership. (vi) To such counsel's knowledge, based upon due inquiry of certain officers of the General Partner, except as disclosed in the Prospectus, there are no actions, suits or proceedings at law or in equity pending or threatened before or by any court, governmental body, administrative agency, panel or self-regulatory organization, nor have there been any such actions, suits or proceedings within the five years preceding the date of the Prospectus against the General Partner or the Partnership, which are required to be disclosed in the Registration Statement or Prospectus. (vii) The Registration Statement is effective under the Securities 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 Securities 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 Securities Act, the Securities Regulations, the CEAct 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, Wickersham & Taft need express no opinion or belief (a) as to information in the Registration Statement or the Prospectus regarding any Trading Advisor or its principals, or (b) as to the financial statements, notes thereto and other financial or statistical data set forth in the Registration Statement and Prospectus, 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 and Exchange Agreement and Power of Attorney in the form attached to the Prospectus has 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 Advisor agrees not to file, participate in the filing of, or publish any description of the Trading Advisor, 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 DOCUMENT. During the term of this Agreement, the Trading Advisor shall furnish to the General Partner promptly copies of all disclosure documents filed with the CFTC or NFA by the Trading Advisor. The General Partner acknowledges receipt of the Trading Advisor's disclosure document dated April 1, 2000. 20. NOTICES. All notices required to be delivered under this Agreement shall be in writing and shall be effective when delivered personally or by telecopy 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: Morgan Stanley Dean Witter Spectrum Select L.P. c/o Demeter Management Corporation Two World Trade Center 62nd Floor New York, New York 10048 Attn: Robert E. Murray if to the General Partner: Demeter Management Corporation Two World Trade Center 62nd Floor New York, New York 10048 Attn: Robert E. Murray if to the Trading Advisor: Northfield Trading L.P. 3609 S. Wadsworth, Suite 250 Denver, Colorado 80235-2110 Attn: Marianne Beausoleil 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 Advisor agrees not to seek any prejudgment equitable or ancillary relief. The Trading Advisor agrees that its sole remedy in any such action or proceeding shall be to seek actual monetary damages for any breach of this Agreement. 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. 25. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute the same 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. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. by Demeter Management Corporation, General Partner By: ------------------------------------------ Name: Robert E. Murray Its: President DEMETER MANAGEMENT CORPORATION By: ------------------------------------------ Name: Robert E. Murray Its: President NORTHFIELD TRADING L.P. By: ------------------------------------------ Name: Its: EX-23.01 7 a2041380zex-23_01.txt EXHIBIT 23.01 EXHIBIT 23.01 INDEPENDENT AUDITORS' CONSENT We consent to the use in the Post-Effective Amendment (PEA) No. 2 to Registration Statement (RS) No. 333-90485 for Morgan Stanley Dean Witter Spectrum Currency L.P. ("Spectrum Currency"), PEA No. 2 to RS No. 333-90483 for Morgan Stanley Dean Witter Spectrum Commodity L.P. ("Spectrum Commodity"), PEA No. 2 to RS No. 333-90475 for Morgan Stanley Dean Witter Spectrum Global Balanced L.P., PEA No. 2 to RS No. 333-90467 for Morgan Stanley Dean Witter Spectrum Select L.P., PEA No. 2 to RS No. 333-90487 for Morgan Stanley Dean Witter Spectrum Strategic L.P., and PEA No. 7 to RS No. 333-68779 for Morgan Stanley Dean Witter Spectrum Technical L.P. (collectively, the "Partnerships") of our report dated February 16, 2001 relating to the statements of financial condition of Spectrum Currency as of December 31, 2000 and of the other above mentioned Partnerships as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' capital, and cash flows for the period from July 3, 2000 (commencement of operations) to December 31, 2000 for Spectrum Currency, for the period from January 2, 1998 (commencement of operations) to December 31, 1998 and for each of the two years in the period ended December 31, 2000 for Spectrum Commodity, and for each of the three years in the period ended December 31, 2000 for the other above mentioned Partnerships appearing in the Prospectus which is part of such Registration Statements. We also consent to the use of our report dated January 12, 2001 relating to the statements of financial condition of Demeter Management Corporation at November 30, 2000 and 1999 appearing in the Prospectus, which is part of such Registration Statements, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche New York, New York March 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----