-----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, QfNbmQCdESDPRl1EhP7XmvstPV/v//OoNeYzhg4QZC9+pq0n+fyCnTBkxgGgOzrZ pDY21CfXRiOfcJS7D6mQcg== 0001066657-00-000004.txt : 20000329 0001066657-00-000004.hdr.sgml : 20000329 ACCESSION NUMBER: 0001066657-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER CHARTER WELTON LP CENTRAL INDEX KEY: 0001066657 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 134018063 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25607 FILM NUMBER: 581221 BUSINESS ADDRESS: STREET 1: DEMETER MANAGEMENT CORP STREET 2: TWO WORLD TRADE CENTER, 62ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123928899 MAIL ADDRESS: STREET 1: DEMETER MANAGEMENT CORP STREET 2: TWO WORLD TRADE CENTER, 62ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the year ended December 31, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ________________to___________________ Commission File Number 0-25607 MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. (Exact name of registrant as specified in its Limited Partnership Agreement) DELAWARE 13- 4018063 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o Demeter Management Corporation Two World Trade Center, - 62nd Flr., New York, N.Y. 10048 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 392-5454 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check-mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [X] State the aggregate market value of the Units of Limited Partnership Interest held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which units were sold as of a specified date within 60 days prior to the date of filing: $21,432,860 at January 31, 2000. DOCUMENTS INCORPORATED BY REFERENCE (See Page 1) MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. INDEX TO ANNUAL REPORT ON FORM 10-K DECEMBER 31, 1999
Page No. DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . 1 Part I . Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 2-5 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . .6-7 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 8 Part II. Item 5. Market for the Registrant's Partnership Units and Related Security Holder Matters . . . . . . . . . . . . . . . 9-10 Item 6. Selected Financial Data . . . . . .. . . . . . . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . 12-22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . 22-34 Item 8. Financial Statements and Supplementary Data. . . . . . . . . . 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . .. . . 35 Part III. Item10. Directors and Executive Officers of the Registrant . . . . . 36-40 Item11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 40 Item12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . 40 Item13. Certain Relationships and Related Transactions . . . . . . . . 41 Part IV. Item14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 42
DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference as follows: Documents Incorporated Part of Form 10-K Partnership's Prospectus dated November 6, 1998 and the Prospectus Supplement dated August 13, 1999 I Annual Report to Morgan Stanley Dean Witter Charter Welton L.P. for the year ended December 31, 1999 II, III and IV PART I Item 1. BUSINESS (a) General Development of Business. Morgan Stanley Dean Witter Charter Welton L.P. ("the Partnership") is a Delaware limited partnership organized to engage primarily in the speculative trading of futures and forward contracts, options on futures contracts and on physical commodities, and other commodity interests, including foreign currencies, financial instruments, metals, energy and agricultural products (collectively, "futures interests"). The Partnership commenced operations on March 1, 1999. The Partnership is one of the Morgan Stanley Dean Witter Charter Series of funds, comprised of the Partnership, Morgan Stanley Dean Witter Charter Graham L.P., and Morgan Stanley Dean Witter Charter Millburn L.P. The general partner is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Dean Witter Reynolds, Inc. ("DWR") and an unaffiliated clearing commodity broker, Carr Futures Inc. ("Carr"), provides clearing and execution services. Demeter and DWR are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). Welton Investment Corporation (the "Trading Advisor"), is the trading advisor to the Partnership. The Partnership registered 3,000,000 units of limited partnership interest ("Units") pursuant to a Registration Statement on Form S- 1 (SEC File Number 333-60097), which became effective on November 6, 1998. The managing underwriter for the Partnership is DWR. Units of the Partnership were offered initially at $10 per Unit from November 6, 1998 through January 15, 1999 for issuance at the initial closing which was held on February 26, 1999 (the "Initial Closing"). Units which remain unsold following the Initial Closing are available for sale at monthly closings to be held as of the last day of each month (a "Monthly Closing") during the Partnership's continuing offering of Units ("Continuing Offering"). Since the Partnership may register additional Units for sale, there is no maximum aggregate amount of contributions that may be received by the Partnership. During the Continuing Offering, Units of the Partnership will be offered for sale at Monthly Closings at a purchase price equal to 100% of the net asset value per Unit as of the last day of each month. The Partnership's Net Asset Value per Unit at December 31, 1999 was $8.93, representing a decrease of 10.7 percent from the Net Asset Value per Unit of $10.00 at March 1, 1999 (commencement of operations). For a more detailed description of the Partnership's business, see subparagraph (c). (b) Financial Information about Industry Segments. For financial information reporting purposes the Partnership is deemed to engage in one industry segment, the speculative trading of futures interests. The relevant financial information is presented in Items 6 and 8. (c) Narrative Description of Business. The Partnership is in the business of speculative trading of futures interests, pursuant to trading instructions provided by the Trading Advisor. For a detailed description of the different facets of the Partnership's business, see those portions of the Partnership's prospectus, dated November 6, 1998 (the "Prospectus"), and the corresponding portions of the Prospectus Supplement dated August 13, 1999, (the "Supplement"), each incorporated by reference in this Form 10-K, set forth below. Facets of Business 1. Summary 1. "Summary of the Prospectus" (Pages 1-4 of the Prospectus and Page S-1 of the Supplement). 2. Futures, Options and 2. "The Futures, Options and Forward Markets Forward Markets" (Pages 76-80 of the Prospectus). 3. Partnership's Trading 3. "Investment Programs, Use Arrangements and of Proceeds and Trading Policies Policies" (Pages 32- 35 of the Prospectus). "The Trading Advisors" (Pages 44-70 of the Prospectus and Pages S-19 - S-36 of the Supplement). 4. Management of the Part- 4. "The Management Agree- nership ments" (Pages 71-74 of the Prospectus). "The General Partner" (Pages 38-41 of the Prospectus and Pages S15 - S- 17 of the Supplement). "The Commodity Brokers" (Page 74-75 of the Prospectus) and "The Limited Partnership Agreement" (Pages 80- 84 of the Prospectus). 5. Taxation of the Partner- 5. "Material Federal Income ship's Limited Partners Tax Considerations" and "State and Local Income Tax Aspects" (Pages 90-97 of the Prospectus). (d) Financial Information About Foreign and Domestic Operations and Export Sales. The Partnership has not engaged in any operations in foreign countries; however, the Partnership (through the commodity brokers) enters into forward contract transactions where foreign banks are the contracting party and trades in futures interests on foreign exchanges. Item 2. PROPERTIES The executive and administrative offices are located within the offices of DWR. The DWR offices utilized by the Partnership are located at Two World Trade Center, 62nd Floor, New York, NY 10048. Item 3. LEGAL PROCEEDINGS 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 6, 10, and 20, 1996, and on March 13, 1997, purported class actions were filed in the Superior Court of the State of California, County of Los Angeles, on behalf of all purchasers of interests in limited partnership commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency Management Inc. ("DWFCM"), MSDW, certain limited partnership commodity pools of which Demeter is the general partner (all such parties referred to hereafter as the "Morgan Stanley Dean Witter Parties") and certain trading advisors to those pools. On June 16, 1997, the plaintiffs in the above actions filed a consolidated amended complaint, alleging, among other things, that the defendants committed fraud, deceit, negligent misrepresentation, various violations of the California Corporations Code, intentional and negligent breach of fiduciary duty, fraudulent and unfair business practices, unjust enrichment, and conversion in the sale and operation of the various limited partnership commodity pools. The complaints seek unspecified amounts of compensatory and punitive damages and other relief. The court entered an order denying class certification on August 24, 1999. On September 24, 1999, the court entered an order dismissing the case without prejudice on consent. 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 Morgan Stanley Dean Witter Parties and certain trading advisors on behalf of all purchasers of interests in various limited partnership commodity pools sold by DWR. A consolidated and amended complaint in the action pending in the Supreme Court of the State of New York was filed on August 13, 1997, alleging that the defendants committed fraud, breach of fiduciary duty, and negligent misrepresentation in the sale and operation of the various limited partnership commodity pools. The complaints seek 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. In addition, 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. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS (a) Market Information There is no established public trading market for Units of the Partnership. (b) Holders The number of holders of Units at December 31, 1999 was approximately 1,334. (c) Distributions No distributions have been made by the Partnership since it commenced trading operations on March 1, 1999. Demeter has sole discretion to decide what distributions, if any, shall be made to investors in the Partnership. Demeter currently does not intend to make any distribution of Partnership profits. (d) Use of Proceeds The Partnership registered 3,000,000 Units pursuant to a Registration Statement on Form S-1, which became effective on November 6, 1998 (SEC File Number 333-60097). The managing underwriter for the Partnership is DWR. The offering originally commenced on November 6, 1998 with 580,145.052 Units sold through February 26, 1999. The aggregate price of the offering amount registered was $5,801,451 (based upon the initial offering price of $10.00 per Unit) for the initial closing on February 26, 1999 (the "Initial Offering"). After the Initial Offering, Units were sold at monthly closings at a price equal to 100% of the Net Asset Value per Unit as of the close of business on the last day of each month. Through December 31, 1999, 2,618,073.190 Units were sold, leaving 381,926.810 Units unsold at December 31, 1999. The aggregate price of the Units sold through December 31, 1999 was $23,840,528. Since no expenses are chargeable against proceeds, 100% of the proceeds of the offering have been applied to the working capital of the Partnership for use in accordance with the "Investment Programs, Use of Proceeds and Trading Policies" section of the Prospectus. Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Period from March 1, 1999 (commencement of operations) to December 31, 1999 Total Revenues (including interest) 608,255 Net Loss (487,845) Net Loss Per Unit (Limited & General Partners) (1.07) Total Assets 23,455,371 Total Limited Partners' Capital 22,813,660 Net Asset Value Per Unit 8.93
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity - The Partnership deposits its assets with DWR as non- clearing broker and Carr as clearing broker in separate futures trading accounts established for the 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 Commodity Futures Trading Commission ("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 such 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 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. 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 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 Advisor and the ability of the 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 March 1, 1999 through December 31, 1999 and a general discussion of its trading activities during the 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 and how the Partnership has performed in the past. As of December 31, 1999, the Partnership's total capital was $23,077,361, an increase of $17,275,910 from the Partnership's total capital of $5,801,451 at February 26, 1999. For the year ended December 31, 1999, the Partnership generated a net loss of $487,845, total subscriptions aggregated $24,110,528 and total redemptions aggregated $545,322. For the year ended December 31, 1999, the Partnership recorded trading revenues including interest income of 608,255 and, after expenses, posted a decrease in Net Asset Value per Unit. Losses of approximately 6.25% occurred in the global interest rate futures markets. The Partnership experienced losses in the third quarter from short positions in Japanese interest rate futures as prices moved higher amid fears that a strong yen may slow that nation's budding recovery. In addition, positions in U.S. and European bonds proved unprofitable as price volatility and choppiness experienced during the year limited the ability to capitalize on trends. Additional losses of approximately 4.27% were recorded in the soft commodities markets primarily in coffee futures due to weather-driven volatility in Brazil, which is the world's largest producer of coffee. A portion of the Partnership's overall losses was offset by gains of approximately 11.19% recorded in the global stock index futures markets particularly from long positions in U.S. and European equity markets. These long positions in U.S. and European equity index futures were especially profitable as many markets experienced significant year-end rallies. Trading in the energy markets produced gains of approximately 0.80% as OPEC 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 and its refined products all benefited from the improving global demand for energy and the decreased supply of crude oil. Total expenses for the year were $1,096,100, resulting in a net loss of $487,845. The value of a Unit decreased from $10.00 at inception of trading on March 1, 1999 to $8.93 at December 31, 1999. The Partnership's overall performance record represents varied results of trading in different futures interests markets. For a further description of 1999 trading results, refer to the letter to the Limited Partners in the accompanying Annual Report to Limited Partners for the year ended December 31, 1999, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. The Partnership's gains and losses are allocated among its partners for income tax purposes. Credit Risk. 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, 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. 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 Advisor was 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 Advisor's internal controls, the Trading Advisor must comply with the trading policies of the Partnership. These trading policies include standards for liquidity and leverage with which the Partnership must comply. The Trading Advisor and Demeter monitor the Partnership's trading activities to ensure compliance with the trading policies. Demeter may require a Trading Advisor to modify positions of the Partnership if Demeter 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 United States 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 forward contracts with a counterparty, the sole recourse of the Partnership will be the forward contracts counterparty. There is no assurance that a clearinghouse or exchange will meet its obligations to the Partnership, and Demeter and the 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. Demeter 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. Demeter, however, has installed a system which permits it to monitor the Partnership's potential margin liability, exchange by exchange. As a result, Demeter 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 been to reduce the credit exposure of the Partnership to a single exchange and, historically, the Partnership's exposure to any 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 such level, Demeter 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, Demeter has secured, with respect to Carr acting as the clearing broker for the Partnership, a guarantee by Credit Agricole Indosuez, Carr's parent, of the payment of the "net liquidating value" of the transactions (futures, options and forward contracts) in the Partnership's account. With respect to forward contract trading, the Partnership trades with only those counterparties which Demeter, together with DWR, have determined to be creditworthy. At the date of this filing, the Partnership deals only with Carr as its counterparty on forward contracts. The guarantee by Carr's parent, discussed above, covers these forward contracts. See "Financial Instruments" under Notes to Financial Statements in the Partnership's Annual Report to Limited Partners for the year ended December 31, 1999, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. Year 2000 Problem. Commodity pools, like financial and business organizations and individuals around the world, depend on the smooth functioning of computer systems. The Year 2000 issue arose since many of the world's computer systems (including those in non-information technology systems) traditionally recorded years in a two-digit format. If not addressed, such computer systems may have been unable to properly interpret dates beyond the year 1999, which may have led to business disruptions in the U.S. and internationally. Such disruptions could have adversely affected the handling or determination of futures trades and prices and other services for the Partnership. Accordingly, Demeter has fully participated in a firmwide initiative established by MSDW to address issues associated with the Year 2000. As part of this initiative, MSDW reviewed its global software and hardware infrastructure for mainframe, server and desktop computing environments and engaged in extensive remediation and testing. The Year 2000 initiative also encompassed the review of agencies, vendors and facilities for Year 2000 compliance. Since 1995, MSDW prepared actively for the Year 2000 issue to ensure that it would have the ability to respond to any critical business process failure, to prevent the loss of workspace and technology, and to mitigate any potential financial loss or damage to its global franchise. Where necessary, contingency plans were expanded or developed to address specific Year 2000 risk scenarios, supplementing existing business policies and practices. In conjunction with MSDW's Year 2000 preparations, Demeter monitored the progress of Carr and the Trading Advisor throughout 1999 in their Year 2000 compliance and, where applicable, tested its external interfaces, with Carr and the Trading Advisor. In addition, Demeter, the commodity brokers, the Trading Advisor and all U.S. futures exchanges were subjected to monitoring by the CFTC of their Year 2000 preparedness, and the major foreign futures exchanges engaged in market-wide testing of their Year 2000 compliance during 1999. MSDW and Demeter consider the transition into the Year 2000 successful from the perspective of their internal systems and global external interactions. Over the millennial changeover period, no material issues were encountered, and MSDW, Demeter and the Partnership conducted business as usual. Risks Associated With the Euro. On January 1, 1999, eleven countries in the European Union established fixed conversion rates on their existing sovereign currencies and converted to a common single currency (the euro). During a three-year transition period, the sovereign currencies will continue to exist but only as a fixed denomination of the euro. Conversion to the euro prevents the Trading Advisor from trading those sovereign currencies and thereby, limits its ability to take advantage of potential market opportunities that might otherwise have existed had separate currencies been available to trade. This could adversely affect the performance results of the Partnership. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Introduction The Partnership is a commodity pool involved in the speculative trading of futures interests. The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnership's assets are at risk of trading loss. Unlike an operating company, the risk of market-sensitive instruments is central, not incidental, to the Partnership's main business activities. The futures interests traded by the Partnership involve varying degrees of 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 the Partnership's open positions, and, consequently, in its earnings and cash flow. The Partnership's total market risk is influenced by a wide variety of factors, including the diversification among the 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 the Partnership. The Partnership's past performance is not necessarily indicative of its future results. Any attempt to numerically quantify the Partnership's market risk is limited by the uncertainty of its speculative trading. The 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 the Partnership's Trading Value at Risk The following quantitative disclosures regarding the Partnership's market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact. The Partnership accounts for open positions using mark-to-market accounting principles. Any loss in the market value of the 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. The Partnership's risk exposure in the market sectors traded by the Trading Advisor is estimated below in terms of Value at Risk ("VaR"). The VaR model used by the Partnership includes many variables that could change the market value of the Partnership's trading portfolio. The 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 ("market risk factors") to which the portfolio is sensitive. The historical observation period of the Partnership's VaR is approximately four years. The one-day 99% confidence level of the 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 Partnership's, 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 Demeter or the Trading Advisor in their daily risk management activities. The Partnership's Value at Risk in Different Market Sectors The following tables indicates the VaR associated with the Partnership's open positions as a percentage of total Net Assets by primary market risk category at December 31, 1999. At December 31, 1999, the Partnership's total capitalization was approximately $23 million. Primary Market December 31, 1999 Risk Category Value at Risk Interest Rate (.08)% Currency (.55) Equity (1.95) Commodity (.54) Aggregate Value at Risk (2.22)% Aggregate Value at Risk represents the aggregate VaR of all the Partnership's open positions and not the sum of the VaR of the individual Market Categories listed above. Aggregate VaR will be lower as it takes into account correlation among different positions and categories. The table above represents the VaR of the Partnership's open positions at December 31, 1999 only and is not necessarily representative of either the historic or future risk of an investment in the Partnership. Because the Partnership's only business is the speculative trading of futures interests, the composition of its 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 table below supplements the year end VaR by presenting the Partnership's high, low and average VaR, as a percentage of total Net Assets for the four calendar quarter-end reporting periods from March 1, 1999 through December 31, 1999. Primary Market Risk Category High Low Average Interest Rate (1.58)% (.08)% (.74)% Currency (1.22) (.55) (.97) Equity (4.75) (.16) (1.79) Commodity (.95) (.19) (.57) Aggregate Value at Risk (5.02)% (1.08)% (2.70)% Limitations on Value at Risk as an Assessment of Market Risk The face value of the market sector instruments held by the Partnership is typically many times the applicable margin requirements. 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 the Partnership to typically be many times the total capitalization of the Partnership. The value of the Partnership's open positions thus creates a "risk of ruin" not typically found in other investments. The relative size of the positions held may cause the 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 Partnership, gives no indication of such "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 in response to 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 factor data used for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movements. The VaR tables above present the results of the Partnership's VaR for each of the Partnership's market risk exposures and on an aggregate basis at December 31, 1999 and for the end of the four calendar quarter reporting periods from March 1, 1999 through December 31, 1999. Since VaR is based on historical data, VaR should not be viewed as predictive of the Partnership's future financial performance or its ability to manage or monitor risk. There can be no assurance that the Partnership's actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than 1 in 100 trading days. Non-Trading Risk The Partnership has non-trading market risk on its foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial. The Partnership also maintains a substantial portion (approximately 86%) of its available assets in cash at DWR. A decline in short-term interest rates will result in a decline in the Partnership's cash management income. This cash flow risk is not considered material. Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality and multiplier features of the Partnership's market- sensitive instruments. Qualitative Disclosures Regarding Primary Trading Risk Exposures The following qualitative disclosures regarding the Partnership's market risk exposures - except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the 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. The Partnership's primary market risk exposures as well as the strategies used and to be used by Demeter and the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership's risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Partnership. Investors must be prepared to lose all or substantially all of their investment in the Partnership. The following were the primary trading risk exposures of the Partnership as of December 31, 1999, by market sector. It may be anticipated however, that these market exposures will vary materially over time. 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, 1999, the Partnership's primary exposures were in the S&P 500 (U.S.), NASDAQ (U.S.), IBEX 35 (Spain) and Nikkei (Japan) stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the U.S. and European 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 1999, the Partnership's major exposures were in 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 the major and minor currencies). Demeter 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. Interest Rate. Exposure was spread across the Australian and Japanese interest rate sectors at the end of the fourth quarter. 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. The G-7 countries consist of France, U.S., Britain, Germany, Japan, Italy and Canada. However, the Partnership also takes futures positions in the government debt of smaller nations - e.g. Australia. Demeter 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. Commodity. Metals. The Partnership's metals market exposure is to fluctuations in the price of base metals. During periods of volatility, base metals may affect performance dramatically. Demeter anticipates that the base metals will remain the primary metals market exposure of the Partnership. Energy. On December 31, 1999, the Partnership's energy exposure was shared by futures contracts in the oil and gas markets. Price movements in these markets result from political developments in the Middle East, weather patterns, and other economic fundamentals. As oil prices have increased approximately 100% this year, and, given that the agreement by OPEC to cut production is approaching expiration in March 2000, it is possible that volatility will remain on the high end. Significant profits and losses have been and are expected to continue to be experienced in this market. Natural gas, also a primary energy market exposure, has exhibited more volatility than the oil markets on an intra day and daily basis and is expected to continue in this choppy pattern. Soft Commodities and Agriculturals. On December 31, 1999, the Partnership had a reasonable amount of exposure in the markets that comprise these sectors. Most of the exposure, however, was in the coffee, cotton and wheat markets. Supply and demand inequalities, severe weather disruption and market expectations affect price movements in these markets. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of the Partnership as of December 31, 1999: Foreign Currency Balances. The Partnership's primary foreign currency balances are in euros, Hong Kong dollars and Japanese yen. The Partnership controls the non-trading risk of these balances by regularly converting these balances back into dollars upon liquidation of the respective position. Qualitative Disclosures Regarding Means of Managing Risk Exposure The Partnership and the Trading Advisor, separately, attempt to manage the risk of the Partnership's open positions in essentially the same manner in all market categories traded. Demeter attempts to manage market exposure by diversifying the Partnership's assets among different market sectors and trading approaches, and monitoring the performance of the Trading Advisor daily. In addition, the Trading Advisor establishes diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market-sensitive instrument. Demeter monitors and controls the risk of the Partnership's non- trading instrument, cash. Cash is the only Partnership investment directed by Demeter, rather than the Trading Advisor. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements are incorporated by reference to the Partnership's Annual Report, which is filed as Exhibit 13.01 hereto. Supplementary data specified by Item 302 of Regulation S-K (selected quarterly financial data) is not applicable. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There are no directors or executive officers of the Partnership. The Partnership is managed by Demeter. Directors and Officers of the General Partner The directors and officers of Demeter are as follows: Robert E. Murray, age 39, is Chairman of the Board, President and a Director of Demeter. Mr. Murray is also Chairman of the Board, President and a Director of DWFCM. Effective as of the close of business on January 31, 2000, Mr. Murray replaced Mr. Hawley as Chairman of the Board of Demeter and DWFCM. Mr. Murray is currently a Senior Vice President of DWR's Managed Futures Department. Mr. Murray began his career at DWR in 1984 and is currently the Director of the Managed Futures Department. In this capacity, Mr. Murray is responsible for overseeing all aspects of the firm's Managed Futures Department. Mr. Murray currently serves as 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 46, is a Director of Demeter. Mr. Merin is also a Director of DWFCM. Mr. Merin was appointed the Chief Operating Officer of Individual Asset Management for MSDW in December 1998 and the President and Chief Executive Officer of Morgan Stanley Dean Witter Advisors in February 1998. He has been an Executive Vice President of DWR since 1990, during which time he has been director of DWR's Taxable Fixed Income and Futures divisions, Managing Director in Corporate Finance and Corporate Treasurer. Mr. Merin received his Bachelor's degree from Trinity College in Connecticut and his M.B.A. degree in finance and accounting from the Kellogg Graduate School of Management of Northwestern University in 1977. Joseph G. Siniscalchi, age 54, 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 57, is a Director of Demeter. Mr. Oelsner is currently an Executive Vice President and head of the Product Development Group at Morgan Stanley Dean Witter Advisors, 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. Lewis A. Raibley, III, age 37, is Vice President, Chief Financial Officer and a Director of Demeter. Mr. Raibley is also a Director of DWFCM. Mr. Raibley is currently Senior Vice President and Controller in the Individual Asset Management Group of MSDW. From July 1997 to May 1998, Mr. Raibley served as Senior Vice President and Director in the Internal Reporting Department of MSDW and prior to that, from 1992 to 1997, he served as Senior Vice President and Director in the Financial Reporting and Policy Division of Dean Witter Discover & Co. He has been with MSDW and its affiliates since June 1986. Richard A. Beech, age 48, is a Director of Demeter. Mr. Beech has been associated with the futures industry for over 23 years. He has been at DWR since August 1984, where he is presently Senior Vice President and head of Branch Futures. Mr. Beech began his career at the Chicago Mercantile Exchange, where he became the Chief Agricultural Economist doing market analysis, marketing and compliance. Prior to joining DWR, Mr. Beech also had worked at two investment banking firms in operations, research, managed futures and sales management. Ray Harris, age 43, is a Director of Demeter. Mr. Harris is currently Executive Vice President, Planning and Administration for Morgan Stanley Dean Witter Asset Management and has worked at DWR or its affiliates since July 1982, serving in both financial and administrative capacities. From August 1994 to January 1999, he worked in two separate DWR affiliates, Discover Financial Services and Novus Financial Corp., culminating as Senior Vice President. Mr. Harris received his B.A. degree from Boston College and his M.B.A. in finance from the University of Chicago. Mark J. Hawley, age 56, served as Chairman of the Board and a Director of Demeter and DWFCM throughout 1999. Mr. Hawley joined DWR in February 1989 as Senior Vice President and served as Executive Vice President and Director of DWR's Product Management for Individual Asset Management throughout 1999. In this capacity, Mr. Hawley was responsible for directing the activities of the firm's Managed Futures, Insurance, and Unit Investment Trust Business. From 1978 to 1989, Mr. Hawley was a member of the senior management team at Heinold Asset Management, Inc., a commodity pool operator, and was responsible for a variety of projects in public futures funds. From 1972 to 1978, Mr. Hawley was a Vice President in charge of institutional block trading for the Mid-West at Kuhn Loeb & Company. Mr. Hawley resigned effective January 31, 2000. All of the foregoing directors have indefinite terms. Item 11. EXECUTIVE COMPENSATION The Partnership has no directors and executive officers. As a limited partnership, the business of the Partnership is managed by Demeter which is responsible for the administration of the business affairs of the Partnership but receives no compensation for such services. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners - As of December 31, 1999, there were no persons known to be beneficial owners of more than 5 percent of the Units. (b) Security Ownership of Management - At December 31, 1999, Demeter owned 29,528.110 Units of General Partnership Interest representing a 1.14 percent interest in the Partnership. (c) Changes in Control - None Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Refer to Note 2 - "Related Party Transactions" of "Notes to Financial Statements", in the accompanying Annual Report to Limited Partners for the year ended December 31, 1999, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. In its capacity as the Partnership's retail commodity broker, DWR received commodity brokerage fees (paid and accrued by the Partnership) of $852,522 for the year ended December 31, 1999. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Listing of Financial Statements The following financial statements and reports of independent auditors, all appearing in the accompanying Annual Report to Limited Partners for the year ended December 31, 1999 are incorporated by reference to Exhibit 13.01 of this Form 10-K: - - Report of Deloitte & Touche LLP, independent auditors, from March 1, 1999 (commencement of operations) to December 31 1999. - - Statements of Financial Condition as of December 31, 1999. - - Statements of Operations, Changes in Partners' Capital, and Cash Flows for the period from March 1, 1999 (commencement of operations) to December 31, 1999. - - Notes to Financial Statements. With the exception of the aforementioned information and the information incorporated in Items 7, 8, and 13, the Annual Report to Limited Partners for the year ended December 31, 1999 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 requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. (Registrant) BY: Demeter Management Corporation, General Partner March 28, 2000 BY: /s/ Robert E. Murray Robert E. Murray, Director, Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Demeter Management Corporation. BY: /s/ Robert E. Murray _____ March 29, 2000 Robert E. Murray, Director, Chairman of the Board and President /s/ Joseph G. Siniscalchi _______ March 29, 2000 Joseph G. Siniscalchi, Director /s/ Edward C. Oelsner III ________ March 29, 2000 Edward C. Oelsner III, Director /s/ Mitchell M. Merin ______ March 29, 2000 Mitchell M. Merin, Director /s/ Richard A. Beech ______ March 29, 2000 Richard A. Beech, Director /s/ Ray Harris _____ March 29, 2000 Ray Harris, Director /s/ Lewis A. Raibley, III __________ March 29, 2000 Lewis A. Raibley, III, Director, Chief Financial Officer and Principal Accounting Officer EXHIBIT INDEX ITEM 3.01 Form of Limited partnership Agreement of the Partnership, dated as of November 6, 1998, is incorporated by reference to Exhibit A of the Partnership's Prospectus, dated November 6, 1998, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, on November 12, 1998. 3.02 Certificate of Limited Partnership, dated July 15, 1998, is incorporated by reference to Exhibit 3.01 of the Partnership's Form 10-Q (File No. 0-25607) for the quarter ended March 31, 1999. 10.01 Management Agreement, dated as of November 6, 1998, among the Partnership, Demeter Management Corporation and Welton Investment Corporation, is incorporated by reference to Exhibit 10.01 of the Partnership's Form 10-Q (File No. 0- 25607) for the quarter ended March 31, 1999. 10.02 Customer Agreement, dated as of November 6, 1998, between Partnership and Dean Witter Reynolds Inc., is incorporated by reference to Exhibit 10.02 of the Partnership's Form 10- Q (File No. 0-25607) for the quarter ended March 31, 1999. 10.03 Customer Agreement, dated as of November 6, 1998, among the Partnership, Carr Futures Inc., and Dean Witter Reynolds Inc., is incorporated by reference to Exhibit 10.03 of the Partnership's Form 10-Q (File No. 0-25607) for the quarter ended March 31, 1999. 10.04 International Foreign Exchange Master Agreement, dated as of November 6, 1998, between the Partnership and Carr Futures, Inc., is incorporated by reference to Exhibit 10.04 of the Partnership's Form 10-Q (File No. 0-25607) for the quarter ended March 31, 1999. 10.05 Subscription and Exchange Agreement and Power of Attorney to be executed by each purchaser of Units is incorporated by reference to Exhibit B of the Partnership's Prospectus dated November 6, 1998, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, on November 12, 1998. 10.06 Escrow Agreement, dated November 6, 1998, among the Partnership, Demeter Management Corporation, Dean Witter Reynolds Inc., and Chemical Bank, is incorporated by reference to Exhibit 10.06 of the Partnership's Form 10-Q (File No. 0-25607) for the quarter ended March 31, 1999. 13.01 December 31, 1999 Annual Report to Limited Partners is filed herewith. E-1 Morgan Stanley Dean Witter Charter Series December 31, 1999 Annual Report MORGAN STANLEY DEAN WITTER Demeter Management Corporation Two World Trade Center 62nd Floor New York, NY 10048 Telephone (212) 392-8899 Morgan Stanley Dean Witter Charter Series Annual Report 1999 Dear Limited Partner: This marks the first annual report for the Morgan Stanley Dean Witter Charter Series. Each of the three Funds began trading on March 1, 1999 with a Net Asset Value per Unit of $10.00. The Net Asset Value per Unit for each of the three Charter Series Funds on December 31, 1999 was as follows:
% Change Funds N.A.V. for Year ----- ------ -------- Charter Graham $10.29 2.9% Charter Millburn $ 9.28 -7.2% Charter Welton $ 8.93 -10.7%
During 1999, Charter Graham recorded a gain in Net Asset Value, while both Charter Millburn and Welton experienced overall losses. Charter Graham profited during the year primarily from long positions in global stock index futures as prices trended higher during the fourth quarter on signs of economic improve- ment in Europe and Asia and diminished concerns for another interest rate hike in 1999. Charter Graham also profited from long futures positions in base met- als and crude oil as prices in these markets trended higher amid declining sup- plies and increased demand. Despite taking advantage and profiting from the price trends in the aforementioned markets, the trend-following approaches of Charter Millburn and Charter Welton experienced difficulty during 1999 primari- ly as a result of short-term price volatility and the lack of defined trends in global interest rate futures. In currencies, sudden trend reversals in the euro and Swiss franc, particularly during the third and fourth quarters, resulted in additional losses for Charter Millburn and Charter Welton and thus offset prof- its recorded from long Japanese yen positions. Charter Graham, on the other hand, had allocated less of its portfolio's exposure to the specific markets that were trendless in the interest rate and currency sectors, and consequently did not realize notable losses in such markets. While we are disappointed that Charter Millburn and Charter Welton had a diffi- cult year in 1999, we remind investors that managed futures funds such as the Charter Series Funds are designed to provide diversification and non-correla- tion, that is, the ability to perform independently, of global equities and bonds. Managed futures have historically performed 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 significantly lesser degrees of non-corre- lation (i.e., greater correlation) with stocks and bonds than others. 1999 proved to be another strong year for equities, due in large part to continued growth and stability in most major world economies accompanied by low infla- tion. This environment, while strong for equities, provided few major sustained price trends in the world's futures and currency markets, and as such, proved to be a difficult trading environment for the money managers whose trading strategies rely on the existence of longer-term price trends for trading oppor- tunities. Nevertheless, we remain confident in the role that managed futures investments play in the overall investment portfolio, and we believe this con- fidence is well-rounded based on the longer-term diversified non-correlated re- turns of this alternative investment. Demeter Management Corporation, as Gener- al Partner to the Funds, has been and continues to be an active investor with more than $18 million invested among the 24 managed futures funds to which we act as General Partner. 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 Morgan Stanley Dean Witter Financial Advisor. 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/Robert E. Murray Robert E. Murray Chairman Demeter Management Corporation General Partner Morgan Stanley Dean Witter Charter Series Independent Auditors' Report The Limited Partners and the General Partner of Morgan Stanley Dean Witter Charter Graham L.P. Morgan Stanley Dean Witter Charter Millburn L.P. Morgan Stanley Dean Witter Charter Welton L.P.: We have audited the accompanying statements of financial condition of Morgan Stanley Dean Witter Charter Graham L.P., Morgan Stanley Dean Witter Charter Millburn L.P. and Morgan Stanley Dean Witter Charter Welton L.P. (collectively, the "Partnerships") as of December 31, 1999 and the related statements of operations, changes in partners' capital, and cash flows for the period from March 1, 1999 (commencement of operations) to December 31, 1999. 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 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 Morgan Stanley Dean Witter Charter Graham L.P., Morgan Stanley Dean Witter Charter Millburn L.P. and Morgan Stanley Dean Witter Charter Welton L.P. at December 31, 1999 and the results of their operations and their cash flows for the period from March 1, 1999 (commencement of operations) to December 31, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP February 14, 2000 (March 3, 2000 as to Note 6) New York, New York Morgan Stanley Dean Witter Charter Graham L.P. Statement of Financial Condition
December 31, 1999 ------------------ $ ASSETS Equity in futures interests trading accounts: Cash 19,067,800 Net unrealized gain on open contracts 1,070,531 ----------- Total Trading Equity 20,138,331 Interest receivable (DWR and Carr) 78,774 Subscriptions Receivable 811,200 ----------- Total Assets 21,028,305 =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 228,143 Accrued brokerage fee (DWR) 108,150 Accrued management fee 30,900 ----------- Total Liabilities 367,193 ----------- PARTNERS' CAPITAL Limited Partners (1,984,358.367 Units) 20,424,608 General Partner (22,977.618 Units) 236,504 ----------- Total Partners' Capital 20,661,112 ----------- Total Liabilities and Partners' Capital 21,028,305 =========== NET ASSET VALUE PER UNIT 10.29 =========== For the Period from March 1, 1999 (commencement of operations) to Statement of Operations December 31, 1999 ------------------ $ REVENUES Trading profit: Realized 839,458 Net change in unrealized 1,070,531 ----------- Total Trading Results 1,909,989 Interest income (DWR and Carr) 444,815 ----------- Total Revenues 2,354,804 ----------- EXPENSES Brokerage fees (DWR) 723,042 Management fees 206,583 ----------- Total Expenses 929,625 ----------- NET INCOME 1,425,179 =========== Net Income Allocation: Limited Partners 1,408,675 General Partner 16,504 Net Income per Unit: Limited Partners .29 General Partner .29
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Charter Millburn L.P. Statement of Financial Condition
December 31, 1999 ------------------ $ ASSETS Equity in futures interests trading accounts: Cash 21,677,769 Net unrealized gain on open contracts 920,823 ---------- Total Trading Equity 22,598,592 Subscriptions Receivable 1,013,235 Interest receivable (DWR and Carr) 96,202 ---------- Total Assets 23,708,029 ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 237,975 Accrued brokerage fee (DWR) 129,371 Accrued management fee 36,963 ---------- Total Liabilities 404,309 ---------- PARTNERS' CAPITAL Limited Partners (2,481,763.344 Units) 23,039,629 General Partner (28,447.087 Units) 264,091 ---------- Total Partners' Capital 23,303,720 ---------- Total Liabilities and Partners' Capital 23,708,029 ========== NET ASSET VALUE PER UNIT 9.28 ========== For the Period from March 1, 1999 (commencement of operations) to Statement of Operations December 31, 1999 ------------------ --- $ REVENUES Trading profit (loss): Realized (2,134,562) Net change in unrealized 920,823 ---------- Total Trading Results (1,213,739) Interest income (DWR and Carr) 559,942 ---------- Total Revenues (653,797) ---------- EXPENSES Brokerage fees (DWR) 912,182 Management fees 260,624 Incentive fees 103,350 ---------- Total Expenses 1,276,156 ---------- NET LOSS (1,929,953) ========== Net Loss Allocation: Limited Partners (1,909,044) General Partner (20,909) Net Loss per Unit: Limited Partners (.72) General Partner (.72)
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Charter Welton L.P. Statement of Financial Condition
December 31, 1999 ------------------- $ ASSETS Equity in futures interests trading accounts: Cash 20,297,239 Net unrealized gain on open contracts 1,722,849 ---------- Total Trading Equity 22,020,088 Subscriptions Receivable 948,424 Net option premiums 403,312 Interest receivable (DWR and Carr) 83,547 ---------- Total Assets 23,455,371 ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 222,634 Accrued brokerage fee (DWR) 120,848 Accrued management fee 34,528 ---------- Total Liabilities 378,010 ---------- PARTNERS' CAPITAL Limited Partners (2,554,572.061 Units) 22,813,660 General Partner (29,528.110 Units) 263,701 ---------- Total Partners' Capital 23,077,361 ---------- Total Liabilities and Partners' Capital 23,455,371 ========== NET ASSET VALUE PER UNIT 8.93 ========== For the Period from March 1, 1999 (commencement of operations) to Statement of Operations December 31, 1999 ------------------- $ REVENUES Trading profit (loss): Realized (1,636,293) Net change in unrealized 1,722,849 ---------- Total Trading Results 86,556 Interest income (DWR and Carr) 521,699 ---------- Total Revenues 608,255 ---------- EXPENSES Brokerage fees (DWR) 852,522 Management fee 243,578 ---------- Total Expenses 1,096,100 ---------- NET LOSS (487,845) ========== Net Loss Allocation: Limited Partners (481,546) General Partner (6,299) Net Loss per Unit: Limited Partners (1.07) General Partner (1.07)
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Charter Series Statement of Changes in Partners' Capital For the Period from March 1, 1999 (commencement of operations) to December 31, 1999
Units of Partnership Limited General Interest Partners Partner Total ---------------------------------------- ----------- $ $ $ Morgan Stanley Dean Witter Charter Graham L.P. Partners' Capital, Initial Offering 436,313.664 4,303,136 60,000 4,363,136 Offering of Units 1,612,075.766 15,122,352 160,000 15,282,352 Net income -- 1,408,675 16,504 1,425,179 Redemptions (41,053.445) (409,555) -- (409,555) --------------- ------------- -------- ----------- Partners' Capital, December 31, 1999 2,007,335.985 20,424,608 236,504 20,661,112 =============== ============= ======== =========== Morgan Stanley Dean Witter Charter Millburn L.P. Partners' Capital, Initial Offering 483,488.295 4,774,883 60,000 4,834,883 Offering of Units 2,079,748.071 20,678,854 225,000 20,903,854 Net loss -- (1,909,044) (20,909) (1,929,953) Redemptions (53,025.935) (505,064) -- (505,064) --------------- ------------- -------- ----------- Partners' Capital, December 31, 1999 2,510,210.431 23,039,629 264,091 23,303,720 =============== ============= ======== =========== Morgan Stanley Dean Witter Charter Welton L.P. Partners' Capital, Initial Offering 580,145.052 5,731,450 70,000 5,801,450 Offering of Units 2,067,456.248 18,109,078 200,000 18,309,078 Net loss -- (481,546) (6,299) (487,845) Redemptions (63,501.129) (545,322) -- (545,322) --------------- ------------- -------- ----------- Partners' Capital, December 31, 1999 2,584,100.171 22,813,660 263,701 23,077,361 =============== ============= ======== ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Charter Graham L.P. Statement of Cash Flows
For the Period from March 1, 1999 (commencement of operations) to December 31, 1999 ----------------- $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 1,425,179 Noncash item included in net income: Net change in unrealized (1,070,531) Increase in operating assets: Interest receivable (DWR and Carr) (78,774) Increase in operating liabilities: Accrued brokerage fee (DWR) 108,150 Accrued management fee 30,900 ---------- Net cash provided by operating activities 414,924 ---------- CASH FLOWS FROM FINANCING ACTIVITIES Initial Offering 4,363,136 Offering of Units 15,282,352 Increase in subscriptions receivable (811,200) Increase in redemptions payable 228,143 Redemptions of Units (409,555) ---------- Net cash provided by financing activities 18,652,876 ---------- Net increase in cash 19,067,800 Balance at beginning of period -- ---------- Balance at end of period 19,067,800 ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Charter Millburn L.P. Statement of Cash Flows
For the Period from March 1, 1999 (commencement of operations) to December 31, 1999 ----------------- $ CASH FLOWS FROM OPERATING ACTIVITIES Net loss (1,929,953) Noncash item included in net loss: Net change in unrealized (920,823) Increase in operating assets: Interest receivable (DWR and Carr) (96,202) Increase in operating liabilities: Accrued brokerage fee (DWR) 129,371 Accrued management fee 36,963 ---------- Net cash used for operating activities (2,780,644) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Initial offering 4,834,883 Offering of Units 20,903,854 Increase in subscriptions receivable (1,013,235) Increase in redemptions payable 237,975 Redemptions of Units (505,064) ---------- Net cash provided by financing activities 24,458,413 ---------- Net increase in cash 21,677,769 Balance at beginning of period -- ---------- Balance at end of period 21,677,769 ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Charter Welton L.P. Statement of Cash Flows
For the Period from March 1, 1999 (commencement of operations) to December 31, 1999 -------------------- $ CASH FLOWS FROM OPERATING ACTIVITIES Net loss (487,845) Noncash item included in net loss: Net change in unrealized (1,722,849) Increase in operating assets: Net option premiums (403,312) Interest receivable (DWR and Carr) (83,547) Increase in operating liabilities: Accrued brokerage fee (DWR) 120,848 Accrued management fee 34,528 ---------- Net cash used for operating activities (2,542,177) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Initial offering 5,801,450 Offering of Units 18,309,078 Increase in subscriptions receivable (948,424) Increase in redemptions payable 222,634 Redemptions of Units (545,322) ---------- Net cash provided by financing activities 22,839,416 ---------- Net increase in cash 20,297,239 Balance at beginning of period -- ---------- Balance at end of period 20,297,239 ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Charter Series Notes to Financial Statements 1. Summary of Significant Accounting Policies Organization--Morgan Stanley Dean Witter Charter Graham L.P. ("Charter Gra- ham"), Morgan Stanley Dean Witter Charter Millburn L.P. ("Charter Millburn"), and Morgan Stanley Dean Witter Charter Welton L.P. ("Charter Welton"), (indi- vidually, a "Partnership", or collectively, the "Partnerships") are limited partnerships organized to engage primarily in the speculative trading of futures and forward contracts, options on futures contracts and on physical commodities and other commodity interests, including foreign currencies, finan- cial instruments, metals, energy and agricultural products (collectively, "futures interests"). The Partnerships commenced operations on March 1, 1999. The general partner for each Partnership is Demeter Management Corporation ("Demeter"). The non-clear- ing commodity broker is Dean Witter Reynolds Inc. ("DWR") and an unaffiliated clearing commodity broker, Carr Futures Inc. ("Carr"), provides clearing and execution services. Demeter and DWR are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co ("MSDW"). 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 on their proportional ownership interests. Use of Estimates--The financial statements are prepared in accordance with gen- erally accepted accounting principles, which require management to make esti- mates and assumptions that affect the reported amounts in the financial state- ments and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Ac- tual 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 profit (loss) on open contracts from one period to the next in the statement of opera- tions. Monthly, DWR credits each Partnership with interest income on 100% of its average daily funds held in its individual account at DWR at a rate equal to that earned by DWR on its U.S. Treasury bill investments. Carr also credits DWR with the interest income earned in respect to the Partnership's Net Assets maintained in trading accounts with Carr. DWR in turn credits the Partnership with 100% of the interest income received from Carr. For purposes of such in- terest payments Net Assets do not include monies due the Partnership on forward contracts and other futures interests, but not actually received. Morgan Stanley Dean Witter Charter Series Notes to Financial Statements--(Continued) Net Income (Loss) per Unit--Net income (loss) per unit of limited partnership interest ("Unit(s)") 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 statement of financial condition, consists of (A) cash on deposit with DWR and Carr to be used as mar- gin for trading; (B) net unrealized gains or losses on open contracts, which are valued at market, and calculated as the difference between original con- tract 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 con- tracts with Carr acting as their commodity broker. Pursuant to brokerage agree- ments with Carr, to the extent that such trading results in unrealized gains or losses, these amounts are offset and reported on a net basis in the Partner- ships' statements of financial condition. The Partnerships have offset the fair value amounts recognized for forward con- tracts executed with the same counterparty as allowable under terms of the mas- ter netting agreements with Carr, the sole counterparty on such contracts. The Partnerships have consistently applied their right to offset. Brokerage and Related Transaction Fees and Costs Each Partnership pays a flat- rate monthly brokerage fee of 1/12 of 7% of the Partnership's Net Assets as of the first day of each month (a 7% annual rate). Such fees currently cover all brokerage commissions, transaction fees and costs and ordinary administrative and offering expenses. Operating Expenses--The Partnerships incur monthly management fees and may in- cur incentive fees. Demeter bears all other operating expenses. 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. Continuing Offering--Units of each Partnership are offered at a price equal to 100% of the Net Asset Value per Unit at monthly closings held as of the last day of each month. Morgan Stanley Dean Witter Charter Series Notes to Financial Statements--(Continued) Redemptions--Limited Partners may redeem some or all of their Units as of the last day of the sixth month following the closing at which a person first be- comes a Limited Partner. Redemptions may only be made in whole Units, with a minimum of 100 Units required for each redemption, unless a Limited Partner is redeeming his entire interest in the Partnerships. Units redeemed on or prior to the last day of the twelfth month from the date of purchase will be 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 prior to the last day of the twenty-fourth month from the date of purchase will be subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on the Redemption Date. Units redeemed after the last day of the twenty-fourth month from the date of purchase will not be sub- ject to a redemption charge. Exchanges--On the last day of the first month which occurs more than 180 days after a person first becomes a Limited Partner in any of the Partnerships, and at the end of each month thereafter, Limited Partners may transfer their in- vestment among the Partnerships (subject to certain restrictions outlined in the Limited Partnership Agreements) without paying additional charges. Dissolution of the Partnership--Each Partnership will terminate on December 31, 2035 or at an earlier date if certain conditions occur as defined in each part- nership's Limited Partnership Agreement. 2. Related Party Transactions Each Partnership pays brokerage fees to DWR as described in Note 1. Each Part- nership's cash is on deposit with DWR and Carr in futures interests trading ac- counts to meet margin requirements as needed. DWR pays interest on these funds as described in Note 1. 3. Trading Advisors Demeter, on behalf of each Partnership, retains certain commodity trading ad- visors to make all trading decisions for the Partnerships. The trading advisors for each Partnership as of December 31, 1999 were as follows: Morgan Stanley Dean Witter Charter Graham L.P. Graham Capital Management L.P. Morgan Stanley Dean Witter Charter Millburn L.P. Millburn Ridgefield Corporation Morgan Stanley Dean Witter Charter Series Notes to Financial Statements--(Continued) Morgan Stanley Dean Witter Charter Welton L.P. Welton Investment Corporation Compensation to the trading advisors by the Partnerships consists of a manage- ment fee and an incentive fee as follows: Management Fee--Each Partnership pays a flat-rate monthly fee of 1/12 of 2% of the Net Assets under management by each trading advisor as of the first day of each month (a 2% annual rate). Incentive Fee--Each Partnership pays a monthly incentive fee equal to 20% of trading profits as of the end of each calendar month. Trading profits repre- sent the amount by which profits from futures, forward and options trading ex- ceed losses after brokerage and management fees are deducted. When a trading advisor experiences losses with respect to Net Assets as of the end of a cal- endar month, the trading advisor must earn back such losses before that trad- ing advisor is eligible for an incentive fee in the future. 4. Financial Instruments The Partnerships trade futures and forward contracts, options on futures con- tracts and on physical commodities and other commodity interests, including 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 val- ue of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may signif- icantly influence the market value of these contracts, including interest rate volatility. In June 1998, the Financial Accounting Standards Board ("FASB") issued State- ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriv- ative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133," which defers the required implementation of SFAS No. 133 until fiscal years beginning after June 15, 2000. However, each Partner- ship has elected to adopt the provisions of SFAS No. 133 for the fiscal year ended December 31, 1999. SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity which carries its assets at fair value. The application of SFAS No. 133 does not have a significant effect on the Partnerships' financial statements. Morgan Stanley Dean Witter Charter Series Notes to Financial Statements--(Continued) The net unrealized gains on open contracts are reported as a component of "Eq- uity in futures interests trading accounts" on the statements of financial con- dition and totaled at December 31, 1999 $1,070,531 for Charter Graham, $920,823 for Charter Millburn and $1,722,849 for Charter Welton. For Charter Graham, of the $1,070,531 net unrealized gain on open contracts at December 31, 1999, $1,133,461 related to exchange-traded futures contracts and $(62,930) related to off-exchange-traded forward currency contracts. For Charter Millburn, of the $920,823 net unrealized gain on open contracts at December 31, 1999, $983,771 related to exchange-traded futures contracts and $(62,948) related to off-exchange-traded forward currency contracts. For Charter Welton, the $1,722,849 net unrealized gain on open contracts at De- cember 31, 1999 related to exchange-traded futures and futures-styled options contracts. Exchange-traded contracts and off-exchange-traded forward currency contracts held by the Partnerships at December 31, 1999 mature as follows:
1999 ---------- Charter Graham Exchange-Traded Contracts June 2001 Off-Exchange-Traded Forward Currency Contracts April 2000 Charter Millburn Exchange-Traded Contracts June 2000 Off-Exchange-Traded Forward Currency Contracts March 2000 Charter Welton Exchange-Traded Contracts May 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 and Carr act as the futures commission merchants or the counterparties, with respect to most of the Part- nerships' 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 and Carr, as a futures commission merchant for each Partnership's exchange-traded futures and futures- Morgan Stanley Dean Witter Charter Series Notes to Financial Statements--(Continued) styled options contracts, are required, pursuant to regulations of the Commodi- ty 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 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, 1999 $20,201,261 for Charter Graham, $22,661,540 for Charter Millburn, and $22,020,088 for Charter Welton. With respect to each Partnership's off-ex- change-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 Carr, the sole counterparty on all such contracts, to perform. Each Partnership has a netting agreement with Carr. These agreements, which seek to reduce both the Partnerships' and Carr's exposure on off-ex- change-traded forward currency contracts, should materially decrease the Part- nerships' credit risk in the event of Carr's bankruptcy or insolvency. Carr's parent, Credit Agricole Indosuez, has guaranteed to the Partnerships payment of the net liquidating value of the transactions in the Partnerships' accounts with Carr (including foreign currency contracts). 5. Legal Matters The class actions first filed in 1996 in California and in New York State Courts were each dismissed in 1999. On September 6, 10, and 20, 1996, and on March 13, 1997, purported class actions were filed in the Superior Court of the State of California, County of Los Angeles, on behalf of all purchasers of in- terests in limited partnership commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency Management Inc., MSDW, certain limited partnership commodity pools of which Demeter is the general partner (all such parties referred to hereafter as the "Morgan Stanley Dean Witter Parties") and certain trading advisors to those pools. On June 16, 1997, the plaintiffs in the above actions filed a consolidated amended complaint, al- leging, among other things, that the defendants committed fraud, deceit, negli- gent misrepresentation, various violations of the California Corporations Code, intentional and negligent breach of fiduciary duty, fraud- ulent and unfair business practices, unjust enrichment, and conversion in the sale and operation of the various limited partnerships commodity pools. The complaints seek unspecified amounts of compensatory and punitive damages and other relief. The court entered an order denying class certification on August 24, 1999. On Sep- Morgan Stanley Dean Witter Charter Series Notes to Financial Statements--(Concluded) tember 24, 1999, the court entered an order dismissing the case without preju- dice on consent. 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 Coun- ty, and on November 14, 1996 in the Superior Court of the State of Delaware, New Castle County, against the Morgan Stanley Dean Witter Parties and certain trading advisors on behalf of all purchas-ers of interests in various limited partnership commodity pools sold by DWR. A consolidated and amended complaint in the action pending in the Supreme Court of the State of New York was filed on August 13, 1997, alleging that the defendants committed fraud, breach of fi- duciary duty, and negligent misrepresentation in the sale and operation of the various limited partnership commodity pools. The complaints seek unspecified amounts of compensatory and punitive damages and other relief. The New York Su- preme Court dismissed the New York action in November 1998, but granted plain- tiffs leave to file an amended complaint, which they did in early December 1998. The defendants filed a motion to dismiss the amended complaint with prej- udice on February 1, 1999. By decision dated December 21, 1999, the New York Supreme Court dismissed the case with prejudice. In addition, on December 16, 1997, upon motion of the plaintiffs, the action pending in the Supreme Court of the State of Delaware was voluntarily dismissed without prejudice. 6. Subsequent Event On March 3, 2000, the plaintiffs in the New York action referred to in Note 5 filed an appeal of the order dismissing the consolidated complaint. MORGAN STANLEY DEAN WITTER & CO. Two World Trade Center 62nd Floor New York, NY 10048 Presorted First Class Mail U.S. Postage Paid Brooklyn, NY Permit No. 148 EX-27 2
5 The schedule contains summary financial information extracted from Dean Witter Multi-Market Portfolio L.P. and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1999 DEC-31-1999 7,643,949 0 28,719 0 0 0 0 0 8,030,735 0 0 0 0 0 0 8,030,735 0 (52,906) 0 0 795,968 0 0 (848,874) 0 (848,874) 0 0 0 (848,874) 0 0 Receivables include interest receivable of $28,719. In addition to cash and receivables, total assets include net unrealized gain on open contracts of $358,067. Liabilities include redemptions payable of $108,909 and accrued management fees of $20,077. Total revenue includes realized trading revenue of $(473,435), net change in unrealized of $94,417 and interest income of $326,112.
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