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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 0-25603
MORGAN STANLEY DEAN WITTER CHARTER GRAHAM L.P.
(Exact name of registrant as specified in its Limited Partnership
Agreement)
DELAWARE 13-
4018068
(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: $20,934,981 at January 31,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
MORGAN STANLEY DEAN WITTER CHARTER GRAHAM 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 . . . . . . . . . . . . . . . . . . . .
. . . . .40-41
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 Graham 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 Graham 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 Millburn L.P., and Morgan Stanley
Dean Witter Charter Welton 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"). Graham
Capital Management L.P. (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
333-60115), 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 $10.29, representing an increase of 2.9 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 1,222.
(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 333-60115). The managing
underwriter for the Partnership is DWR.
The offering originally commenced on November 6, 1998 with
436,313.664 Units sold through February 26, 1999. The aggregate
price of the offering amount registered was $4,363,136 (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, 2,025,411.812 Units were sold, leaving
974,588.188 Units unsold at December 31, 1999. The aggregate
price of the Units sold through December 31, 1999 was
$19,425,488.
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) 2,354,804
Net Income 1,425,179
Net Income
Per Unit (Limited
& General Partners) .29
Total Assets 21,028,305
Total Limited
Partners' Capital 20,424,608
Net Asset Value
Per Unit 10.29
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.
At December 31, 1999, the Partnership's total capital was
$20,661,112, an increase of $16,297,976 from the Partnership's
total capital of $4,363,136 at February 26, 1999.
For the year ended December 31, 1999, the Partnership generated
net income of $1,425,179, total subscriptions aggregated
$19,645,488 and total redemptions aggregated $409,555.
For the year ended December 31, 1999, the Partnership recorded
total trading revenues including interest income of $2,354,804
and posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 7.19% were recorded in the
global stock index futures markets primarily during the fourth
quarter. Gains were recorded in the U.S. and European equity
markets of 10.76% and 4.31%, respectively, as many markets
experienced significant year-end rallies. The overall strength
of U.S. stocks boosted European stocks specifically in Germany,
France, and Spain. Additional gains of approximately 4.87% were
recorded in the metals markets primarily during the first and
fourth quarters from long positions in aluminum and copper as
prices increased on technical factors and a healthy economic
outlook for most industrialized nations economies in the year
ahead. Trading in the energy markets produced gains of
approximately 2.20% 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. Long positions in crude oil benefited from the improving
global demand for energy and the decreased supply. A portion of
the Partnership's overall gains was offset by losses of
approximately 1.51% recorded in the agricultural markets. Short
corn futures positions proved unprofitable when prices reversed
higher in the second quarter on a seasonally driven rally. Total
expenses for the year were $929,625, resulting in net income of
$1,425,179. The value of a Unit increased from $10.00 at
inception of trading on March 1, 1999 to $10.29 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
to 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 as of December 31, 1999. At
December 31, 1999, the Partnership's total capitalization was
approximately $21 million.
Primary Market December 31, 1999
Risk Category Value at Risk
Currency (1.45)%
Interest Rate (.90)
Equity (.81)
Commodity (.55)
Aggregate Value at Risk (2.05)%
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
Currency (2.76)% (1.27)% (1.76)%
Interest Rate (3.74) (.90) (2.06)
Equity (.81) (.25) (.43)
Commodity (.87) (.55) (.73)
Aggregate Value at Risk (4.71)% (1.83)% (2.91)%
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 73%) 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 at December 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Currency. The primary market exposure in the Partnership is in
the currency sector. The Partnership's currency exposure is to
exchange rate fluctuations, primarily fluctuations which disrupt
the historical pricing relationships between different currencies
and currency pairs. Interest rate changes as well as political
and general economic conditions influence these
fluctuations. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two
currencies other than the U.S. dollar. 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. The second largest market exposure this quarter
is in the interest rate complex. Exposure was spread across the
U.S., Australian, Japanese and European interest rate sectors.
Interest rate movements directly affect the price of the
sovereign bond futures positions held by the Partnership and
indirectly affect the value of its stock index and currency
positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially
impact the Partnership's profitability. The Partnership's
primary interest rate exposure is generally to interest rate
fluctuations in the United States and the other G-7
countries. 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.
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. At December 31, 1999, the Partnership's primary
exposures were in the Nikkei (Japan), IBEX 35 (Spain) and S&P 500
(U.S.) stock indices. The Partnership is primarily exposed to
the risk of adverse price trends or static markets in the U.S.,
European and Japanese indices. (Static markets would not cause
major market changes but would make it difficult for the
Partnership to avoid being "whipsawed" into numerous small
losses).
Commodity.
Metals. The Partnership's 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 natural 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. All of the exposure, however, was
in the cocoa and cotton 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 at December 31, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros 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, the beneficial owner of more than 5 percent of
Units is listed below:
Name and address Amount and nature of
Title of Class of beneficial owner beneficial ownership
Percent of class
Units LUCRF PTN LTD 106,788
5.38%
c/o Merrill Lynch PVT
Australia LTD
Attn: Lewis Johnson
120 Collins Street
Melbourne Victoria
Australia 3000
990904
(b) Security Ownership of Management - At December 31, 1999,
Demeter owned 22,977.618 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 commissions (paid and accrued by the
Partnership) of $723,042 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, for
the period from March 1, 1999 (commencement of operations) to
December 31, 1999.
- - Statement of Financial Condition as of December 31, 1999.
- - Statement 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 GRAHAM L.P.
(Registrant)
BY: Demeter Management
Corporation,
General Partner
March 29, 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 3.02 of the
Partnership's form 10-Q (File No. 0-25605) for the quarter
ended March 31, 1999.
10.01 Management Agreement, dated as of November 6, 1998, among
the Partnership, Demeter Management Corporation, and
Capital Management L.P. is incorporated by reference to
Exhibit 10.01 of the Partnership's Form 10-Q (File No. 0-
25605) for the quarter ended March 31, 1999.
10.02 Customer Agreement, dated as of November 6, 1998, between
the Partnership and Dean Witter Reynolds Inc. is
incorporated by reference to Exhibit 10.02 of the
Partnership's Form 10-Q (File No. 0-25605) 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.
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 Partner-ship's Form 10-Q (File No. 0-25605)
for the quarter ended March 31, 1999.
10.05 Subscription and Exchange Agreement and Power of
Attorney to be executed by each purchase 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 in Exhibit 10.06 of the Partnership's Form 10-Q
(File No. 0-25605) 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