Item 1. BUSINESS
(a) General Development of Business. Dean Witter Select
Futures Fund L.P. (the "Partnership") is a Delaware limited
partnership formed to engage in the speculative trading of
commodity futures contracts and other commodity interests,
including, but not limited to, forward contracts on foreign
currencies and options on futures contracts and physical
commodities (collectively "futures interests").
Units of limited partnership interest ("Units") in
the Partnership were registered pursuant to two Registration
Statements on Form S-l (File Nos. 33-39667 and 33-42380)
which became effective on May 17 and August 23, 1991,
respectively. The offering of Units was underwritten on a
best efforts" basis by Dean Witter Reynolds Inc. ("DWR").
The Partnership's General Partner is Demeter Management
Corporation ("Demeter"). DWR and Demeter are wholly-owned
subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD"). The Partnership commenced operations on August
1, 1991. 75,000 additional Units were registered pursuant
to a Registration Statement on Form S-1 (File No. 33-65072),
which became effective on August 31, 1993. 60,000
additional Units were registered persuant to a Registration
Statement on Form S-1 (file No. 333-1918) which became
effective on August 13, 1996.
Through July 31, 1997, the sole commodity broker for
the Partnership's transactions was DWR. On July 31, 1997,
DWR closed the sale of its institutional futures business
and foreign currency trading operations to Carr Futures,
Inc. ("Carr"), a subsidiary of Credit Agricole Indosuez.
Following the sale, Carr became the clearing commodity
broker for the Partnership's futures and futures options
trades and the counterparty on the Partnership's foreign
currency trades. DWR serves as the non-clearing commodity
broker for the Partnerships with Carr providing all clearing
services for the Partnership's transactions.
The Partnership's net asset value per Unit, as of
December 31, 1997 was $2,084.52, representing an increase of
6.22 percent from the net asset value per Unit of $1,962.38
at December 31, 1996. For a more detailed description of
the Partnership's business, see subparagraph (c).
(b) Financial Information about Industry Segments. The
Partnership's business comprises only one segment for
financial reporting purposes, speculative trading of
commodity futures contracts and other commodity interests.
The relevant financial information is presented in
Items 6 and 8.
(c) Narrative Description of Business. The Partnership
is in the business of speculative trading in futures
interests, pursuant to trading instructions provided by EMC
Capital Management, Inc., Rabar Market
Research, Inc. and Sunrise Capital Management, Inc., the
Partnership's independent trading advisors (the "Trading
Advisor(s)"). For a detailed description of the different
facets of the Partnership's business, see those portions of
the Partnership's Prospectus, dated October 17, 1996, filed
as part of the Registration Statement on Form S-l, File No.
333-1919 (see "Documents Incorporated by Reference" Page l),
set forth below.
Facets of Business
1. Summary 1. "Summary of the Prospectus" (Pages 1-12).
2. Commodity Markets 2. "Futures, Options and Forwards Markets" (Pages 48-53).
3. Partnership's Commodity 3. "Investment Program, Use of Trading Arrangements and Proceeds and Trading Policies Policies - Trading Policies" (Pages 43-44). "The Trading Advisors" (Pages 55- 62).
4. Management of the Part- 4. "The Management Agree- nership ments" (Page 65). "The General Partner" (Pages 45-47) and "The Commodity Broker" (Page 63). "The Limited Partnership Agreement" (Pages 67- 71).
5. Taxation of the Partner- 5. "Material Federal Income ship's Limited Partners Tax Considerations" and "State and Local Income Tax Aspects" (Pages 76-84).
(d) Financial Information About Foreign and Domestic Operations and Export Sales.
The Partnership has not engaged in any operations in
foreign countries; however, the Partnership (through the
commodity brokers) enters into forward contract transactions
where foreign banks are the contracting party and trades in
futures interests on foreign exchanges.
Item 2.
Item 2. PROPERTIES The executive and administrative offices are located
within the offices of DWR. The DWR offices utilized by the
Partnership are located at Two World Trade Center, 62nd
Floor, New York, NY 10048.
Item 3.
Item 3. LEGAL PROCEEDINGS
On September 6, 10, and 20, 1996, and on March 13,
1997, similar purported class actions were filed in the
Superior Court of the State of California, County of Los
Angeles, on behalf of all purchasers of interests in limited
partnership commodity pools sold by DWR. Named defendants
include DWR, Demeter, Dean Witter Futures & Currency
Management Inc., ("DWFCM"), MSDWD (all such parties referred
to hereafter as the "Dean Witter Parties"). The
Partnership, certain other limited partnership commodity
pools of which Demeter is the general partner, and certain
trading advisors to those pools. On June 16, 1997, the
plaintiffs in the above actions filed a consolidated amended
complaint, alleging, among other things, that the defendants
committed fraud, deceit, negligent misrepresentation,
various violations of the
California Corporations Code, intentional and negligent
breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in the sale and
operation of the various limited partnerships commodity
pools. Similar purported class actions were also filed on
September 18 and 20, 1996, in the Supreme Court of the State
of New York, New York County, and on November 14, 1996 in
the Superior Court of the State of Delaware, New Castle County,
against the Dean Witter Parties and certain trading advisors on
behalf of all purchasers of interests in various limited
partnership commodity pools including the Partnership sold by DWR.
A consolidated and amended complaint in the action pending in the
Supreme Court of the State of New York was filed on August 13,
1997, alleging that the defendants committed fraud, breach of
fiduciary duty, and negligent misrepresentation in the sale
and operation of the various limited partnership commodity
pools. On December 16, 1997, upon motion of the plaintiffs,
the action pending in the Superior Court of the State of
Delaware was voluntarily dismissed without prejudice. The
complaints seek unspecified amounts of compensatory and
punitive damages and other relief. It is possible that
additional similar actions may be filed and that, in the
course of these actions, other parties could be added as
defendants. The Dean Witter Parties believe that they and
the Partnership have strong defenses to, and they will
vigorously contest,
the actions. Although the ultimate outcome of legal
proceedings cannot be predicted with certainty, it is the
opinion of management of the Dean Witter Parties that the
resolution of the actions will not have a material adverse
effect on the financial condition or the results of
operations of any of the Dean Witter Parties or the
Partnership.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for the
Units of Limited Partnership Interest in the Partnership.
The number of holders of Units at December 31, 1997 was
approximately 10,557. No distributions have been made by
the Partnership since it commenced trading operations on
August 1, 1991. Demeter has sole discretion to decide what
distributions, if any, shall be made to investors in the
Partnership. No determination has yet been made as to
future distributions.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are on deposit in
separate commodity interest trading accounts with DWR and
Carr, the commodity brokers, and are used by the Partnership
as margin to engage in commodity futures, forward contracts
and other commodity interest trading. DWR and Carr hold
such assets at either designated depositories or in
securities approved by the Commodity Futures Trading
Commission ("CFTC") for investment of customer funds. The
Partnership's assets held by DWR and Carr may be used as
margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in commodity futures
contracts and other commodity interests, it is expected that
the Partnership will continue to own such liquid assets for
margin purposes.
The Partnership's investment in commodity futures
contracts, forward contracts and other commodity interests
may be illiquid. If the price for a futures contract for a
particular commodity has increased or decreased by an amount
equal to the "daily limit", positions in the commodity can
neither be taken nor liquidated unless traders are willing
to effect trades at or within the limit. Commodity futures
prices have occasionally moved the daily limit for several
consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly
liquidating its commodity futures positions.
There is no limitation on daily price moves in trading
forward contracts on foreign currencies. The markets for
some world currencies have low trading volume and are
illiquid, which may prevent the Partnership from trading in
potentially profitable markets or prevent the Partnership
from promptly liquidating unfavorable positions in such
markets and subjecting it to substantial losses. Either of
these market conditions could result in restrictions on
redemptions.
Market Risk. The Partnership trades futures, options
and forward contracts in interest rates, stock indices,
commodities and currencies. In entering into these
contracts there exists a risk to the Partnership (market
risk) that such contracts may be significantly influenced by
market conditions, such as interest rate volatility,
resulting in such contracts being less valuable. If the
markets should move against all of the futures interest
positions held by the Partnership at the same time, and if
the Trading Advisors were unable to offset futures interest
positions of the Partnership, the Partnership could lose all
of its assets and the Limited Partners would realize a 100%
loss. The Partnership has established Trading Policies,
which include standards for liquidity and leverage which
help control market risk. Both the Trading Advisors and
Demeter monitor the Partnership's trading activities on a
daily basis to ensure compliance with the Trading Policies.
Demeter may
(under terms of the Management Agreements) override the
trading instructions of a Trading Advisor to the extent
necessary to comply with the Partnership's Trading Policies.
Credit Risk. In addition to market risk, in entering
into futures, options and forward contracts there is a
credit risk to the Partnership that the counterparty on a
contract will not be able to meet its obligations to the
Partnership. The ultimate counterparty of the Partnership
for futures contracts traded in the United States and most
foreign exchanges on which the Partnership trades is the
clearinghouse associated with such exchange. In general, a
clearinghouse is backed by the membership of the exchange
and will act in the event of non-performance by one of its
members or one of its member's customers, and, as such,
should significantly reduce this credit risk. For example,
a clearinghouse may cover a default by (i) drawing upon a
defaulting member's mandatory contributions and/or non-
defaulting members' contributions to a clearinghouse
guarantee fund, established lines or letters of credit with
banks, and/or the clearinghouse's surplus capital and other
available assets of the exchange and clearinghouse, or (ii)
assessing its members. In cases where the Partnership
trades on a foreign exchange where the clearinghouse is not
funded or guaranteed by the membership or where the exchange
is a "principals' market" in which performance is the
responsibility of the exchange member and not the
exchange or a clearinghouse, or when the Ppartnership enters
into off-exchange contracts with a counterparty, the sole
recourse of the Partnership will be the clearinghouse, the
exchange member or the off-exchange contract counterparty,
as the case may be.
There can be no assurance that a clearinghouse,
exchange or other exchange member will meet its obligations
to the Partnership, and the Partnership is not indemnified
against a default by such parties from Demeter or MSDWD or
DWR. Further, the law is unclear as to whether a commodity
broker has any obligation to protect its customers from loss
in the event of an exchange, clearinghouse or other exchange
member default on trades effected for the broker's
customers; any such obligation on the part of the broker
appears even less clear where the default occurs in a non-US
jurisdiction.
Demeter deals with the credit risks of all
partnership's for which it serves as General Partner in
several ways. First, it monitors each 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 each partnership, as with all
their customers, of its net margin requirements for all its
existing open positions, but do not break that net figure
down, exchange by exchange. Demeter, however, has installed
a system which permits it to monitor each partnership's
potential margin liability, exchange by exchange. Demeter
is then able to monitor the individual 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, as discussed earlier, each partnership's
trading policies limit the amount of partnership Net Assets
that can be committed at any given time to futures contracts
and require, in addition, a certain minimum amount of
diversification in the partnership's trading, usually over
several different products. One of the aims of such trading
policies has been to reduce the credit exposure of any
partnership to any single exchange and, historically, such
partnership exposure has typically amounted to only a small
percentage of its total Net Assets. On those relatively few
occasions where a partnership's credit exposure has climbed
above that level, Demeter has dealt with the situations on a
case by case basis, carefully weighing whether the increased
level of credit exposure remained appropriate. Demeter
expects to continue to deal with such situations in a
similar manner in the future.
Third, Demeter has secured, with respect to Carr acting
as the clearing broker for the partnerships, a guarantee by
Credit Agricole Indosuez, Carr's parent, of the payment of
the "net liquidating value" of the transactions (futures,
options and forward contracts) in each
partnership's account. As of December 31, 1997, Credit
Agricole Indosuez' total capital was over $3.25 billion and
it is currently rated AA2 by Moody's.
With respect to forward contract trading, the
partnerships trade with only those counterparties which
Demeter, together with DWR, have determined to be
creditworthy. At the date of this filing, the
partnerships deal only with Carr as their counterparty on
forward contracts. The guarantee by Carr's parent,
discussed above, covers these forward contracts.
See "Financial Instruments" under Notes to Financial
Statements in the Partnership's 1997 Annual Report to
Partners, incorporated by reference in this Form 10-K.
Capital Resources. The Partnership does not have, nor
does it expect to have, any capital assets. Redemptions of
additional Units of Limited Partnership Interest in the
future will affect the amount of funds available for
investments in subsequent periods. As redemptions are at
the discretion of Limited Partners, it is not possible to
estimate the amount and therefore, the impact of future
redemptions.
Results of Operations. As of December 31, 1997, the
Partnership's total capital was $166,773,321, an increase of
$2,987,036 from the Partnership's total capital of
$163,786,285, at December 31, 1996. For the year ended
December 31, 1997, the Partnership generated net income of
$9,943,717, total subscriptions aggregated $12,056,614 and
total redemptions aggregated $19,013,295.
For the year ended December 31, 1997, the Partnership's
total trading revenues including interest income were
$26,495,529. The Partnership's total expenses for the year
were $16,551,812, resulting in net income of $9,943,717.
The value of an individual unit in the Partnership increased
from $1,962.38 at December 31, 1996 to $2,084.52 at December
31, 1997.
As of December 31, 1996, the Partnership's total capital
was $163,786,285, a decrease of $12,659,975 from the
Partnership's total capital of $176,446,260 at December 31,
1995. For the year ended December 31, 1995, the Partnership
generated net income of $5,414,041, total subscriptions
aggregated $10,251,712 and total redemptions aggregated
$28,325,728.
For the year ended December 31, 1996, the Partnership's
total trading revenues including interest income were
$22,046,523. The Partnership's expenses for the year were
$16,632,482, resulting in net income of $5,414,041. The
value of an individual unit in the Partnership increased
from $1,864.21 at December 31, 1995 to $1,962.38 at December
31, 1996.
As of December 31, 1995, the Partnership's total capital
was $176,446,260, an increase of $8,256,932 from the
Partnership's total
capital of $168,189,328 at December 31, 1994. For the year
ended December 31, 1995, the Partnership generated net
income of $39,054,115 and total redemptions aggregated
$30,797,183.
For the year ended December 31, 1995, the Partnership's
total trading revenues including interest income were
$69,299,562. The Partnership's total expenses for the year
were $30,245,447, resulting in net income of $39,054,115.
The value of an individual unit in the Partnership increased
from $1,508.07 at December 31, 1994 to $1,864.21 at December
31, 1995.
The Partnership's overall performance record represents
varied results of trading in different commodity markets.
For a further description of trading results, refer to the
letter to the Limited Partners in the accompanying 1997
Annual Report to Partners, incorporated by reference in this
Form 10-K. The Partnership's gains and losses are allocated
among its Limited Partners for income tax purposes.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the
attached 1997 Annual Report to Partners and is incorporated
by reference in this Annual Report on Form 10-K.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III Item 10.
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT General Partner
Demeter, a Delaware corporation, was formed on August
18, 1977 to act as a commodity pool operator and is
registered with the CFTC as a commodity pool operator and
currently is a member of the National Futures Association
("NFA") in such capacity. Demeter is wholly-owned by MSDWD
and is an affiliate of DWR. MSDWD, DWR and Demeter may each
be deemed to be "promoters" and/or a "parent" of the
Partnership within the meaning of the federal securities
laws.
On July 21, 1997, MSDWD, the sole shareholder of
Demeter, appointed a new Board of Directors consisting of
Richard M. DeMartini, Mark J. Hawley, Lawrence Volpe, Joseph
G. Siniscalchi, Edward C. Oelsner III, and Robert E. Murray.
Dean Witter Reynolds Inc.
DWR is a financial services company which provides to
its individual, corporate and institutional clients services
as a broker in securities and commodity interest contracts,
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. DWR is a
member firm of the New York Stock Exchange, the American
Stock Exchange, the Chicago Board Options Exchange, and
other major securities exchanges.
DWR is registered with the CFTC as a futures commission
merchant and is a member of the NFA in such capacity. As of
December 31, 1997, DWR is servicing its clients through a
network of approximately 401 branch offices with
approximately 10,155 account executives servicing individual
and institutional client accounts.
Directors and Officers of the General Partner
The directors and officers of Demeter as of December 31,
1997 are as follows:
Richard M. DeMartini, age 45, is the Chairman of the
Board and a Director of Demeter. Mr. DeMartini is also
Chairman of the Board and a Director of Dean Witter Futures
& Currency Management Inc. ("DWFCM"). Mr. DeMartini is
president and chief operating officer of MSDWD's Individual
Asset Management Group. He was named to this position in
May of 1997 and is responsible for Dean Witter InterCapital,
Van Kampen American Capital, insurance services, managed
futures, unit trust, investment consulting services, Dean
Witter Realty, and NOVUS Financial Corporation. Mr.
DeMartini is a member of the MSDWD management committee, a
director of the InterCapital funds, a trustee of the TCW/DW
funds and a trustee of the Van Kampen American Capital and
Morgan Stanley retail funds. Mr. DeMartini has been with
Dean Witter his entire career, joining the firm in 1975 as
an account executive. He served as a branch manager,
regional director and national sales
director, before being appointed president and chief
operating officer of the Dean Witter Consumer Markets. In
1988 he was named president and chief operating officer of
Sears' Consumer Banking Division and in January 1989 he
became president and chief operating officer of Dean Witter
Capital. Mr. DeMartini has served as chairman of the board
of the Nasdaq Stock Market, Inc. and vice chairman of the
board of the National Association of Securities Dealers,
Inc. A native of San Francisco, Mr. DeMartini holds a
bachelor's degree in marketing from San Diego State
University.
Mark J. Hawley, age 54, is President and a Director of
Demeter. Mr. Hawley is also President and a Director of
DWFCM. Mr. Hawley joined DWR in February 1989 as Senior
Vice President and is currently the Executive Vice President
and Director of DWR's Managed Futures Department. From 1978
to 1989, Mr. Hawley was a member of the senior management
team at Heinold Asset Management, Inc., a CPO, and was
responsible for a variety of projects in public futures
funds. From 1972 to 1978, Mr. Hawley was a Vice President
in charge of institutional block trading for the Mid-West at
Kuhn Loeb & Company.
Lawrence Volpe, age 50, is a Director of Demeter and
DWFCM. Mr. Volpe joined DWR as a Senior Vice President and
Controller in September 1983, and currently holds those
positions. From July 1979 to September 1983, he was
associated with E.F. Hutton & Company Inc. and prior to his
departure, held the positions of First Vice President and
Assistant Controller. From 1970 to July 1979, he was
associated with Arthur Anderson & Co. and prior to his
departure served as audit manager in the financial services
division.
Joseph G. Siniscalchi, age 52, is a Director of
Demeter. Mr. Siniscalchi joined DWR in July 1984 as a First
Vice President, Director of General Accounting and served as
a Senior Vice President and Controller for DWR's Securities
division through 1997. He is currently Executive Vice
President and Director of the Operations Division of DWR.
From February 1980 to July 1984, Mr. Siniscalchi was
Director of Internal Audit at Lehman Brothers Kuhn Loeb,
Inc.
Edward C. Oelsner, III, age 55, is a Director of
Demeter. Mr. Oelsner is currently an Executive Vice
President and head of the Product Development Group at Dean
Witter InterCapital Inc., an affiliate of DWR. Mr. Oelsner
joined DWR in 1981 as a Managing Director in DWR's
Investment Banking Department specializing in coverage of
regulated industries and, subsequently, served as head of
the DWR Retail Products Group. Prior to joining DWR, Mr.
Oelsner held positions at The First Boston Corporation as a
member of the Research and Investment Banking Departments
from 1967 to 1981. Mr. Oelsner received his M.B.A. in
Finance from the Columbia University Graduate School of
Business in 1966 and an A.B. in Politics from Princeton
University in 1964.
Robert E. Murray, age 37, is a Director of Demeter.
Mr. Murray is also a Director of DWFCM. Mr. Murray is
currently a Senior Vice President of DWR's Managed Futures
Department and is the Senior Administrative Officer of
DWFCM. Mr. Murray began his career at DWR in 1984 and is
currently the Director of Product Development for the
Managed Futures Department. He is responsible for the
development and maintenance of the proprietary Fund
Management System utilized by DWFCM and Demeter in
organizing information and producing reports for monitoring
clients' accounts. Mr. Murray currently serves as a
Director of the Managed Funds Association. Mr. Murray
graduated from Geneseo State University in May 1983 with a
B.A. degree in Finance.
Patti L. Behnke, age 37, is Vice President and Chief
Financial Officer of Demeter. Ms. Behnke joined DWR in
April 1991 as Assistant Vice President of Financial
Reporting and is currently a First Vice President and
Director of Financial Reporting and Managed Futures
Accounting in the Individual Asset Management Group. Prior
to joining DWR, Ms. Behnke held positions of increasing
responsibility at L.F. Rothschild & Co. and Carteret Savings
Bank. Ms. Behnke began her career at Arthur Anderson & Co.,
where she was employed in the audit division
from 1982-1986. She is a member of the AICPA and the New
York State Society of Certified Public Accountants.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers.
As a limited partnership, the business of the Partnership is
managed by Demeter which is responsible for the
administration of the business affairs of the Partnership
but receives no compensation for such services.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT (a) Security Ownership of Certain
Beneficial Owners - As of December 31, 1997, there were no
persons known to be beneficial owners of more than 5 percent
of the Units of Limited Partnership Interest in the
Partnership.
(b) Security Ownership of Management - At December 31,
1997, Demeter owned 1,330.767 Units of General Partnership
Interest representing a 1.66 percent interest in the
Partnership.
(c) Changes in Control - None
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes
to Financial Statements", in the accompanying 1997 Annual
Report to Partners, incorporated by reference in this Form
10-K. In its capacity
as the Partnership's retail commodity broker, DWR received
commodity brokerage commissions (paid and accrued by the
Partnership) of $9,777,851 for the year ended December 31,
1997.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and reports of
independent public accountants, all appearing in the
accompanying 1997 Annual Report to Partners, are
incorporated by reference in this Form 10-K:
- Report of Deloitte & Touche LLP, independent auditors, for the years ended December 31, 1997, 1996 and 1995.
- Statements of Financial Condition as of December 31, 1997 and 1996.
- Statements of Operations, Changes in Partners' Capital, and Cash Flows for the years ended December 31, 1997, 1996 and 1995.
- Notes to Financial Statements.
With the exception of the aforementioned information and
the information incorporated in Items 7, 8 and 13, the 1997
Annual Report to Partners is not deemed to be filed with
this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be
filed with this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the
Partnership during the last quarter of the period covered by
this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
SIGNATURES
Pursuant to the requirement of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DEAN WITTER SELECT FUTURES FUND L.P.
(Registrant)
BY: Demeter Management Corporation, General Partner
March 23, 1998 BY: /s/ Mark J. Hawley Mark J. Hawley, Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Demeter Management Corporation.
BY: /s/ Mark J. Hawley March 23, Mark J. Hawley, Director and President
/s/ Richard M. DeMartini March 23, Richard M. DeMartini, Director and Chairman of the Board
/s/ Lawrence Volpe March 23, Lawrence Volpe, Director
/s/ Joseph G. Siniscalchi March 23, Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 23, Edward C. Oelsner III, Director
/s/ Robert E. Murray, March 23, Robert E. Murray, Director
/s/ Patti L. Behnke March 23, Patti L. Behnke, Chief Financial Officer and Principal Accounting Officer EXHIBIT INDEX
ITEM METHOD OF FILING -3. Amended and Restated Limited Partnership Agreement of the Partnership, dated as of August 13, 1996. (1) - -10. Form of Management Agreement among the Partnership, Demeter and EMC Capital (2) Management, Inc., Rabar Market Research and Sunrise Commodities dated as of May 17, 1991 ("the Management Agreements"). - -10. Form of Amendement No. 1 to each of the Management Agreements dated July 22, 1991. (3)
- -10. Form of Amendment No. 2 to each of the Management Agreements dated October 1, 1993. (4)
- -10. Form of Amendment No. 3 to each of the Management Agreements dated (5) November 29, 1996.
- -10. Form of Amended and Restated Customer Agreement between the Partnership and Dean Witter Reynolds Inc., dated as of (6) September 1, 1996.
- -13. December 31, 1997 Annual Report to Limited Partners. (7)
(1) Incorporated by reference to Exhibit 3.01(b) of the Partnership's Registration Statement on Form S-1 (File No. 333-1918).
(2) Incorporated by reference to Exhibit 10.02 of the Partnership's Registration Statement on Form S-1 (File No. 33-65072).
(3) Incorporated by reference to Exhibit 10.02(a) of the Partnership's Registration Statement on Form S-1 (File No. 33-42380).
(4) Incorporated by reference to Exhibit 10.02(b) of the Partnership's Registration Statement on Form S-1 (File No. 33-42380).
(5) Incorporated by reference to Exhibit 10.02(c) of the Partnership's Registration Statement on Form S-1 (File No. 333-1918).
(6) Incorporated by reference to Exhibit 10.01(c) of the Partnership's Registration Statement on Form S-1 (File No. 333-1918).
(7) Filed herewith.
Select Futures Fund
December 31, 1997 Annual Report
[LOGO OF DEAN WITTER APPEARS HERE]
DEAN WITTER Two World Trade Center 62nd Floor New York, NY 10048 Telephone (212) 392-8899
DEAN WITTER SELECT FUTURES FUND L.P. ANNUAL REPORT
Dear Limited Partner:
This marks the seventh annual report for the Dean Witter Select Futures Fund L.P. (the "Fund"). The Fund began 1997 trading at a Net Asset Value per Unit of $1,962.38 and increased to a Net Asset Value per Unit of $2,084.52 at December 31, 1997, a net gain of 6.2% for the year. Since its inception in 1991, the Fund has increased by 108.5% (a compound annualized return of 12.1%).
In January, gains were recorded as a result of a strengthening in the value of the U.S. dollar versus the Japanese yen and most major world currencies. Gains were also recorded from short gold futures positions as prices declined to their lowest levels in over three years. During February, gains were recorded as the value of the U.S. dollar continued to strengthen relative to most major world currencies. Additional gains were recorded from long coffee futures positions as prices moved higher during the month. Small losses were recorded during March from trend reversals in the currency markets, as the value of most European currencies reversed higher relative to the U.S. dollar, and in energies, from short positions in gas and oil futures.
In April, losses were recorded in the financial futures markets as domestic bond prices rallied higher late in the month after showing signs of trending lower previously. Inconsistent price movement in global stock index futures resulted in smaller losses within this market complex. During May, losses were experienced from short Canadian dollar positions as its value finished the month higher relative to most major currencies. Continued short-term volatility in oil and gas
prices resulted in additional losses for the Fund. The Fund recorded relatively flat performance during June as losses experienced from long coffee futures positions, as coffee prices reversed dramatically lower, offset gains from short positions in soybean and corn futures, as well as from long positions in global stock index futures.
During July, profits were recorded from long positions in global interest rate and stock index futures as prices in these markets trended higher. Additional gains were recorded from short European currency positions as the U.S. dollar again strengthened relative to the German mark. In August, a sharp trend reversal in global interest rate and stock index futures resulted in a give- back of a portion of July's profits. Additional losses were recorded in the currency markets as the value of most European currencies increased relative to the U.S. dollar after moving lower previously. A strong upward move in global bond futures prices during September resulted in gains for the Fund's long positions. Smaller gains were recorded from long silver and short copper futures positions.
The Fund recorded losses during October due to sharp trend reversals in global bond futures early in the month and short-term price volatility in U.S. bond and stock index futures in the month's final week. Additional losses were experienced from trendless price movement in the energy and metals complexes. In November, the Fund experienced gains in currencies from short positions in the Canadian dollar as its value weakened relative to the U.S. dollar. Additional gains were recorded from trading precious and base metal futures. A majority of the Fund's gains were offset by losses in the financial futures markets from long positions in Japanese government bond futures as prices moved lower. During December, the Fund recorded gains from short positions in crude and heating oil
futures as prices moved lower. Additional gains were recorded in metals from trading copper and silver futures. Smaller gains were recorded from short positions in the Japanese yen and Australian dollar when these currencies declined as the economic crisis in the Pacific Rim escalated.
The Fund recorded net profits during 1997 primarily as a result of a strengthening in the value of the U.S. dollar versus the Japanese yen and most major world currencies throughout the year. Additional gains were recorded from long global interest rate futures positions as U.S., Australian and European interest rate futures trended higher in July. A portion of these gains was offset by losses experienced from sharp trend reversals and short-term volatile price movement in global bond futures during April and August. Overall, the Fund's ability to capture profits in the currency and financial futures complexes more than offset smaller losses incurred from trendless price movement in most traditional commodities.
Should you have any questions concerning this report, please feel free to contact Demeter Management Corporation at Two World Trade Center, 62nd Floor, New York, NY 10048, or your Dean Witter Account Executive.
I hereby affirm, that to the best of my knowledge and belief, the information contained in this report is accurate and complete. Past performance is not a guarantee of future results.
Sincerely,
/s/ Mark J. Hawley
Mark J. Hawley President Demeter Management Corporation General Partner
DEAN WITTER SELECT FUTURES FUND L.P. INDEPENDENT AUDITORS' REPORT
The Limited Partners and the General Partner:
We have audited the accompanying statements of financial condition of Dean Witter Select Futures Fund L.P. (the "Partnership") as of December 31, 1997 and 1996 and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Dean Witter Select Futures Fund L.P. as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
February 17, 1998 March 11, 1998 as to Note 6 New York, New York
DEAN WITTER SELECT FUTURES FUND L.P. STATEMENTS OF FINANCIAL CONDITION
The accompanying notes are an integral part of these financial statements.
DEAN WITTER SELECT FUTURES FUND L.P. STATEMENTS OF OPERATIONS
STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The accompanying notes are an integral part of these financial statements.
DEAN WITTER SELECT FUTURES FUND L.P. STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
DEAN WITTER SELECT FUTURES FUND L.P. NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Dean Witter Select Futures Fund L.P. (the "Partnership") is a limited partnership organized to engage in the speculative trading of commodity futures contracts, commodity options contracts and forward contracts on foreign currencies. The general partner for the Partnership is Demeter Management Corporation ("Demeter"). Demeter is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD").
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean Witter, Discover & Co. ("DWD"). At that time DWD changed its corporate name to Morgan Stanley, Dean Witter, Discover & Co.
Demeter has retained EMC Capital Management, Inc. ("EMC"), Rabar Market Research, Inc. ("Rabar") and Sunrise Capital Management, Inc. ("Sunrise") as the trading advisors of the Partnership.
Through July 31, 1997, the sole commodity broker for the Partnership's transactions was Dean Witter Reynolds Inc. ("DWR"), also a subsidiary of MSDWD. On July 31, 1997, DWR closed the sale of its institutional futures business and foreign currency trading operations to Carr Futures Inc. ("Carr"), a subsidiary of Credit Agricole Indosuez. Following the sale, Carr became the clearing commodity broker for the Partnership's futures and futures options trades and the counterparty on the Partnership's foreign currency trades. DWR will continue to serve as the non-clearing commodity broker for the Partnership with Carr providing all clearing services for Partnership transactions.
Demeter is required to maintain a 1% minimum interest in the equity of the Partnership and income (losses) are shared by the General and Limited Partners based upon their proportional ownership interests.
OFFERING OF UNITS--During the period from October 17, 1996 through February 28, 1997 additional Units were offered to the public at a price equal to 100% of the Net Asset Value as of the close of business on the last day of each month prior to the March 1, 1997 closing date of the offering.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements.
DEAN WITTER SELECT FUTURES FUND L.P. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REVENUE RECOGNITION--Commodity futures contracts, commodity options and forward contracts on foreign currencies are open commitments until settlement date. They are valued at market and the resulting unrealized gains and losses are reflected in income. Monthly, DWR pays the Partnership interest income based upon 80% of the average daily Net Assets for the month at a rate equal to a prevailing rate on U.S. Treasury Bills issued during such month. For purposes of such interest payments, Net Assets do not include monies due the Partnership on forward contracts and other commodity interests, but not actually received.
NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the weighted average number of units outstanding during the period.
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset "Equity in Commodity futures trading accounts" consists of cash on deposit at DWR and Carr to be used as margin for trading and the net asset or liability related to unrealized gains or losses on open contracts and the net option premiums paid and/or received. The asset or liability related to the unrealized gains or losses on forward contracts is presented as a net amount in each period due to master netting agreements.
BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS--The Partnership accrues brokerage commissions on a half-turn basis at 80% of DWR's published non-member rates. Transaction fees and costs are accrued on a half-turn basis. Prior to September 1, 1996, brokerage commissions were capped at 3/4 of 1% per month of the Net Assets allocated to each trading advisor as defined in the Limited Partnership Agreement (a 9% annual rate). Transaction fees and costs, exclusive of "give-up" fees, were capped at 1/12 of 1% per month of the Net Assets allocated to each trading advisor (a 1% annual rate).
Effective September 1, 1996, brokerage commissions and transaction fees chargeable to the Partnership have been capped at 13/20 of 1% per month of the Partnership's month-end Net Assets (as defined in the Limited Partnership Agreement) allocated to each such Trading Advisor (a 7.8% annual rate).
OPERATING EXPENSES--The Partnership bears all operating expenses related to its trading activities, to a maximum of 1/4 of 1% annually of the Partnership's average month-end Net Assets. These include filing fees, clerical, administrative, auditing, accounting, legal, mailing, printing, and other incidental operating expenses as permitted by the Limited Partnership Agreement. In addition, the Partnership incurs a
DEAN WITTER SELECT FUTURES FUND L.P. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
monthly management fee and may incur an incentive fee. Demeter bears all other operating expenses.
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 an investor becomes a limited partner, upon five business days advance notice by redemption form to Demeter. Thereafter, Units may be redeemed as of the end, of any month upon five business days advance notice by redemption form to Demeter. However, any Units redeemed at or prior to the end of the twelfth, eighteenth, or twenty- fourth full months following the closing at which such person first became a limited partner, may be assessed a redemption charge equal to 3%, 2% or 1%, respectively, of the Net Asset Value per Unit on the date of such redemption. Limited Partners who obtained their units via an exchange from another DWR sponsored commodity pool are not subject to the six month holding period or the redemption charges.
DISTRIBUTIONS--Distributions, other than on redemptions of Units, are made on a pro-rata basis at the sole discretion of Demeter. No distributions have been made to date.
INCOME TAXES--No provision for income taxes has been made in the accompanying financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of the Partnership's revenues and expenses for income tax purposes.
DISSOLUTION OF THE PARTNERSHIP--The Partnership will terminate on December 31, 2025 or at an earlier date if certain conditions set forth in the Limited Partnership Agreement occur.
2. RELATED PARTY TRANSACTIONS
The Partnership's cash is on deposit with DWR and Carr in commodity trading accounts to meet margin requirements as needed. DWR pays interest on these funds as described in Note 1. Under its Customer Agreement with DWR, the Partnership pays DWR brokerage commissions as described in Note 1.
3. TRADING ADVISORS
Compensation to EMC, Rabar and Sunrise consists of a management fee and an incentive fee as follows:
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/4 of 1% per month of the Net Assets (a 3% annual rate) allocated to each Trading Advisor, as of the last day of each month.
DEAN WITTER SELECT FUTURES FUND L.P. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INCENTIVE FEE--The Partnership pays a quarterly incentive fee to each trading advisor equal to 17.5% of the Trading Profits, experienced with respect to each Trading Advisor's allocated Net Assets as of the end of each calendar quarter. If a Trading Advisor has experienced "Trading Losses" with respect to its allocated Net Assets at the time of a supplemental closing, the trading advisor must earn back such losses plus a pro rata amount related to the funds allocated to the trading advisor at a supplemental closing before the trading advisor is eligible for an incentive fee. Such incentive fee is accrued in each month in which "Trading Profits" occurs. In those months in which "Trading Profits" are negative, previous accruals, if any, during the incentive period will be reduced. In those instances in which a Limited Partner redeems an investment, the incentive fee (if earned through a redemption date) is to be paid to such advisor on those redemptions in the month of such redemptions.
4. FINANCIAL INSTRUMENTS
The Partnership trades futures, options and forward contracts in interest rates, stock indices, commodities, currencies, petroleum, and precious metals. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including interest rate volatility. At December 31, 1997 and 1996, open contracts were:
A portion of the amounts indicated as off-balance-sheet risk in forward currency contracts is due to offsetting
DEAN WITTER SELECT FUTURES FUND L.P. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
forward commitments to purchase and to sell the same currency on the same date in the future. These commitments are economically offsetting, but are not offset in the forward market until the settlement date.
The unrealized gains on open contracts are reported as a component of "Equity in Commodity futures trading accounts" on the Statements of Financial Condition and totaled $9,627,161 and $6,477,994 at December 31, 1997 and 1996, respectively.
Of the $9,627,161 net unrealized gain on open contracts at December 31, 1997, $10,514,844 related to exchange-traded futures contracts and $(887,683) related to off-exchange-traded forward currency contracts.
Of the $6,477,994 net unrealized gain on open contracts at December 31, 1996, $6,477,946 related to exchange-traded futures contracts and $48 related to off- exchange-traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31, 1997 and 1996 mature through December 1998 and December 1997, respectively. Off- exchange-traded forward currency contracts held by the Partnership at December 31, 1997 and 1996 mature through March 1998 and January 1997, respectively.
The contract amounts in the above table represent the Partnership's extent of involvement in the particular class of financial instrument, but not the credit risk associated with counterparty nonperformance. The credit risk associated with these instruments is limited to the amounts reflected in the Partnership's Statements of Financial Condition.
The Partnership also has credit risk because either DWR or Carr acts as the futures commission merchant or the counterparty, with respect to most of the Partnership's assets. Exchange-traded futures and options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. DWR and Carr, as the futures commission merchants for the Partnership's exchange-traded futures and 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 and options contracts including an amount equal to the net unrealized gain on all open futures and option contracts, which funds totaled, $168,693,769 and $161,261,953, at December 31, 1997 and 1996, respectively. With respect to the Partnership's off-exchange-traded forward currency contracts, there are no daily settlements of variations in value nor is there
DEAN WITTER SELECT FUTURES FUND L.P. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
any requirement that an amount equal to the net unrealized gain on open forward contracts be segregated. With respect to those off-exchange-traded forward currency contracts, the Partnership is at risk to the ability of Carr, the sole counterparty on all of such contracts, to perform. Carr's parent, Credit Agricole Indosuez, has guaranteed Carr's obligations to the Partnership.
For the year ended December 31, 1997 and 1996, the average fair value of financial instruments held for trading purposes was as follows:
5. LEGAL MATTERS:
On September 6, 10, and 20, 1996, and on March 13, 1997, similar purported class actions were filed in the Superior Court of the State of California, County of Los Angeles, on behalf of all purchasers of interests in limited partnership commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency Management Inc., MSDWD (all such parties referred to hereafter as the "Dean Witter Parties"), the Partnership, certain other limited partnership commodity pools of which Demeter is the general partner, and certain trading advisors to those pools. On June 16, 1997, the plaintiffs in the above actions filed a consolidated amended complaint, alleging, among other things, that the defendants committed fraud, deceit, negligent misrepresentation, various violations of the California Corporations Code, intentional and negligent breach of fiduciary duty, fraudulent and unfair business practices, unjust enrichment, and conversion in the sale and operation of the various limited partnerships commodity pools. Similar purported class actions were also filed on
DEAN WITTER SELECT FUTURES FUND L.P. NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
September 18 and 20, 1996, in the Supreme Court of the State of New York, New York County, and on November 14, 1996 in the Superior Court of the State of Delaware, New Castle County, against the Dean Witter Parties and certain trading advisors on behalf of all purchasers of interests in various limited partnership commodity pools including the Partnership sold by DWR. A consolidated and amended complaint in the action pending in the Supreme Court of the State of New York was filed on August 13, 1997, alleging that the defendants committed fraud, breach of fiduciary duty, and negligent misrepresentation in the sale and operation of the various limited partnership commodity pools. On December 16, 1997, upon motion of the plaintiffs, the action pending in the Superior Court of the State of Delaware was voluntarily dismissed without prejudice. The complaints seek unspecified amounts of compensatory and punitive damages and other relief. It is possible that additional similar actions may be filed and that, in the course of these actions, other parties could be added as defendants. The Dean Witter Parties believe that they and the Partnership have strong defenses to, and they will vigorously contest, the actions. Although the ultimate outcome of legal proceedings cannot be predicted with certainty, it is the opinion of management of the Dean Witter Parties that the resolution of the actions will not have a material adverse effect on the financial condition or the results of operations of any of the Dean Witter Parties or the Partnership.
6. SUBSEQUENT EVENT
On March 11, 1998, Select Fund filed a registration statement (the "Offering") with the Securities and Exchange Commission to register 1,500,000 Units for sale and to include the Partnership as part of an open-ended series of funds, the Spectrum Series, for which Demeter also serves as general partner. The Partnership will change its name to Dean Witter Spectrum Select L.P. Effective with the first monthly closing of the Offering, each outstanding Unit of the Partnership will be converted into 100 Units. In addition, at this time the incentive fee payable to each Trading Advisor will be reduced to 15% of "Trading Profits," as defined in the Prospectus, and will be payable on a monthly basis. Brokerage fees will be charged to the Partnership at a monthly rate of 1/12 of 7.25% of Net Assets as of the first day of each month. Such fees will cover all brokerage commissions, transaction fees and costs and ordinary administrative and continuing offering expenses.
DEAN WITTER REYNOLDS INC. Two World Trade Center 62nd Floor New York, NY 10048 FIRST-CLASS MAIL ZIP + 4 PRESORT U.S. POSTAGE PAID BROOKLYN, NY PERMIT NO. 148