10-Q 1 well.txt CHARTER WELTON UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2001 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 charter) 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, 62 Fl., New York, NY 10048 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 392-5454 (Former name, former address, and former fiscal year, if changed since last report) 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___________ MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 2001

PART I. FINANCIAL INFORMATION Item 1. Financial Statements MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. STATEMENTS OF FINANCIAL CONDITION

MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. STATEMENTS OF OPERATIONS (Unaudited)

MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. STATEMENTS OF OPERATIONS (Unaudited)

MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Six Months Ended June 30, 2001 and 2000 (Unaudited)

MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. STATEMENTS OF CASH FLOWS (Unaudited)

MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. NOTES TO FINANCIAL STATEMENTS June 30, 2001 (UNAUDITED) The unaudited financial statements contained herein include, in the opinion of management, all adjustments necessary for a fair presentation of the results of operations and financial condition of Morgan Stanley Dean Witter Charter Welton L.P. (the "Partnership"). The financial statements and condensed notes herein should be read in conjunction with the Partnership's December 31, 2000 Annual Report on Form 10-K. 1. Organization - Morgan Stanley Dean Witter Charter Welton L.P. is a Delaware limited partnership organized to engage primarily in the speculative trading of futures contracts, options on futures contracts, and forward contracts, on physical commodities and other commodity interests, including foreign currencies, financial instruments, metals, energy and agricultural products. 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., Morgan Stanley Dean Witter Charter Millburn L.P. and Morgan Stanley Dean Witter Charter DWFCM L.P. The general partner is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc. MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) ("Morgan Stanley DW"). Dean Witter Reynolds Inc. changed its name to Morgan Stanley DW Inc., effective April 2, 2001. The clearing commodity brokers are Morgan Stanley & Co., Inc. ("MS & Co.") and Morgan Stanley & Co. International Limited ("MSIL"). Demeter, Morgan Stanley DW, MS & Co. and MSIL are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. Welton Investment Corporation (the "Trading Advisor") is the trading advisor to the Partnership. 2. Related Party Transactions The Partnership's cash is on deposit with Morgan Stanley DW, MS & Co. and MSIL in futures, forwards and options trading accounts to meet margin requirements as needed. Morgan Stanley DW pays interest on these funds based on a rate equal to that earned by Morgan Stanley DW on its U.S. Treasury bill investments. The Partnership pays brokerage fees to Morgan Stanley DW. 3. Financial Instruments The Partnership trades futures contracts, options on futures contracts, and forward contracts, 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 MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) instrument at a specified date and price. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including interest rate volatility. The Partnership accounts for its derivative investments in accordance with the provisions of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative as a financial instrument or other contract that has all three of the following characteristics: 1) One or more underlying notional amounts or payment provisions; 2) Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; 3) Terms require or permit net settlement. Generally derivatives include futures, forward, swaps or options contracts or other financial instruments with similar characteristics such as caps, floors and collars. MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The net unrealized gains on open contracts, reported as a component of "Equity in futures interests trading accounts" on the statements of financial condition and their longest contract maturity were as follows: Net Unrealized Gains on Open Contracts Longest Maturity Exchange- Exchange- Traded Total Traded Date Contracts Contracts Contracts $ $ June 30, 2001 23,425 23,425 March 2002 December 31, 2000 3,301,439 3,301,439 September 2001 The Partnership has credit risk associated with counterparty non- performance. The credit risk associated with the instruments in which the Partnership is involved is limited to the amounts reflected in the Partnership's statements of financial condition. The Partnership also has credit risk because Morgan Stanley DW, MS & Co. and MSIL act as the futures commission merchants or the counterparties with respect to most of the Partnership's 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 Morgan Stanley DW, MS & Co. and MSIL, as a futures commission merchant for the Partnership's exchange-traded futures and futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) Commission ("CFTC"), 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 $18,613,372 and $22,915,542 at June 30, 2001 and December 31, 2000, respectively. With respect to the Partnership's off-exchange-traded forward currency contracts, there are no daily settlements of variations in value nor is there any requirement that an amount equal to the net unrealized gain on open forward contracts be segregated. With respect to those off-exchange-traded forward currency contracts, the Partnership is at risk to the ability of MS & Co., the sole counterparty on all of such contracts, to perform. The Partnership has a netting agreement with MS & Co. This agreement, which seeks to reduce both the Partnership's and MS & Co.'s exposure on off-exchange-traded forward currency contracts, should materially decrease the Partnership's credit risk in the event of MS & Co.'s bankruptcy or insolvency. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity. The Partnership deposits its assets with Morgan Stanley DW as non-clearing broker and MS & Co. and MSIL as clearing brokers in separate futures, forwards and options 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 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, 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 of limited partnership interest ("Units") will affect the amount of funds available for investment in futures, forwards and options in subsequent periods. It is not possible to estimate the amount and therefore the impact of future redemptions of Units. 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 the three and six month periods ended June 30, 2001 and 2000, and a general discussion of its trading activities during each period. It is important to note, however, that the Trading Advisor trades in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisor or will be profitable in the future. Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of its Trading Advisor's trading activities on behalf of the Partnership as a whole and how the Partnership has performed in the past. For the Quarter and Six Months Ended June 30, 2001 For the quarter ended June 30, 2001, the Partnership recorded total trading losses, net of interest income, of $3,654,962 and posted a decrease in net asset value per Unit. The most significant losses of approximately 6.4% were recorded in the global interest rate futures markets primarily during late June from long positions in German interest rate futures as bond prices moved lower due to weakness in the euro, gains in the equity markets and a smaller cut in U.S. interest rates than expected. Additional losses were incurred during late June from long positions in U.S. interest rate futures as prices dropped on the reduced chance of further aggressive interest rate cuts by the U.S. Federal Reserve, following its 0.25% cut after the Federal Open Market Committee meeting. In the currency markets, losses of approximately 6.0% were recorded primarily during April and May from short positions in the Japanese yen as the value of the yen reversed higher relative to the U.S. dollar following a surprise interest rate cut by the U.S. Federal Reserve and on optimism that the Japanese government would unveil an emergency package to revive that country's ailing economy. In the metal markets, losses of approximately 2.6% were recorded during late May from long positions in gold futures as gold prices reversed sharply lower, after spiking higher earlier in the month, following the return of more bearish sentiment regarding the outlook for the U.S. economy. Additional losses of approximately 2.6% were incurred in the energy markets during early April from short futures positions in crude oil and heating oil as prices moved higher on supply concerns amid refinery production problems. Total expenses for the three months ended June 30, 2001 were $459,361, resulting in a net loss of $4,114,323. The net asset value of a Unit decreased from $8.05 at March 31, 2001 to $6.56 at June 30, 2001. For the six months ended June 30, 2001, the Partnership recorded total trading losses, net of interest income, of $3,550,699 and posted a decrease in net asset value per Unit. The most significant losses of approximately 9.4% were recorded in the energy markets primarily during February from short futures positions in crude oil and its related products as prices reversed higher amid cold weather forecasts, anticipated OPEC production cuts and a tightening in supplies. Additional losses were recorded during January from long positions in natural gas futures as prices declined, reversing their previous sharp upward trend amid bearish inventory data and forecasts for warmer weather. In the currency markets, losses of approximately 6.6% were recorded primarily during January and February from trading the euro relative to the Japanese yen due to short-term volatility as a result of conflicting economic signals and a surprise cut in the discount rate by the Bank of Japan ("BOJ"). In the metals markets, losses of approximately 4.0% were incurred primarily during April and early May from short gold futures positions as prices climbed higher on weakness in the U.S. dollar. Smaller losses of approximately 1.6% were recorded in the agricultural markets during February from short lean hog futures positions as prices rallied sharply higher, and during January from long soybean meal futures positions as prices moved lower due to favorable South American weather. These losses were partially offset by gains of approximately 2.5% recorded throughout the first quarter in the global interest rate futures markets primarily from long positions in Japanese government bond futures as prices moved higher amid weak Japanese stock prices and disappointing economic data in that country. Additional profits were recorded during January from long positions in eurodollar futures as prices moved higher due to a surprise interest rate cut by the U.S. Federal Reserve in early January. In the soft commodities markets, gains of approximately 1.2% were recorded primarily during February from short cotton futures positions as cotton prices declined on weak export sales and low demand. Total expenses for the six months ended June 30, 2001 were $944,123, resulting in a net loss of $4,494,822. The net asset value of a Unit decreased from $8.20 at December 31, 2000 to $6.56 at June 30, 2001. For the Quarter and Six Months Ended June 30, 2000 For the quarter ended June 30, 2000, the Partnership recorded total trading losses, net of interest income, of $2,342,058 and posted a decrease in net asset value per Unit. The most significant losses of approximately 7.7% were recorded in the currency markets primarily during April from long positions in the Japanese yen as the value of the yen weakened versus the U.S. dollar amid fears of additional BOJ intervention. During May and June, losses were recorded from short positions in the Japanese yen as its value reversed higher versus the U.S. dollar following hints by BOJ governor Hayami of the possible end of the zero interest rate policy in Japan. The U.S. dollar weakened further versus the yen during June due primarily to the perception that interest rates in the U.S. may have topped out. In the global stock index futures markets, losses of approximately 6.3% were recorded primarily during April from long U.S. stock index futures positions as domestic equity prices declined following an unexpected jump in the Consumer Price Index on fears of inflation and concerns that the Federal Reserve may need to raise interest rates more aggressively. In the metals markets, losses of approximately 1.5% resulted primarily during June from short aluminum futures positions as prices reversed sharply higher mid- month on institutional buying and fears that U.S. capacity could be hit further by power shortages. In the global interest rate futures markets, losses of approximately 0.8% were recorded throughout the majority of the quarter from short positions in German bund futures as prices were pushed higher by a rise in U.S. prices. These losses were partially offset by gains of approximately 4.2% recorded primarily in the energy markets during May and June from long futures positions in crude oil and its related products as the previous upward movement in oil prices re-emerged amid rising concerns regarding supplies and production levels. Additional gains were recorded during May from long positions in natural gas futures as prices continued their upward trend, as data released by the American Gas Association further confirmed fears that inventory levels remain low. In the soft commodities markets, gains of approximately 0.6% were recorded throughout a majority of the quarter from short positions in coffee futures as prices declined on technical factors. Total expenses for the three months ended June 30, 2000 were $529,331, resulting in a net loss of $2,871,389. The net asset value of a Unit decreased from $8.86 at March 31, 2000 to $7.83 at June 30, 2000. For the six months ended June 30, 2000, the Partnership recorded total trading losses, net of interest income, of $1,953,706 and posted a decrease in net asset value per Unit. The most significant losses of approximately 8.2% were recorded primarily during January in the global stock index futures markets from long positions in U.S. stock index futures as U.S. and European equity prices reversed lower, after rallying higher in December, amid fears of interest rate hikes in the U.S. and Europe. During April, additional losses were recorded from long U.S. stock index futures positions as domestic equity prices declined following an unexpected jump in the Consumer Price Index. In the currency markets, losses of approximately 4.7% were experienced primarily during April from long positions in the Japanese yen as the value of the yen weakened versus the U.S. dollar amid fears of additional BOJ intervention. During May and June, losses were recorded from short positions in the Japanese yen as its value reversed higher versus the U.S. dollar following hints by BOJ governor Hayami of the possible end of the zero interest rate policy in Japan. In the global interest rate futures markets, losses of approximately 1.7% were recorded throughout the majority of the second quarter from short positions in German bund futures as prices were pushed higher by the rise in U.S. prices. In the metals markets, losses of approximately 1.6% resulted primarily during June from short aluminum futures positions as prices reversed sharply higher at mid-month on institutional buying and fears that U.S. capacity could be hit further by power shortages. These losses were partially offset by gains of approximately 5.8% recorded primarily during January and February in the energy markets from long positions in crude oil futures and its refined products as oil prices increased on concerns about future output levels from the world's leading producer countries amid dwindling stockpiles and increasing demand. Gains were also recorded during May and June from long futures positions in crude oil as the previous upward movement in oil prices reemerged amid rising concerns regarding supplies and production levels. Additional gains were recorded during May from long positions in natural gas futures as prices continued their upward trend, as data released by the American Gas Association further confirmed fears that inventory levels remain low. Total expenses for the six months ended June 30, 2000 were $1,042,592, resulting in a net loss of $2,996,298. The net asset value of a Unit decreased from $8.93 at December 31, 1999 to $7.83 at June 30, 2000. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Introduction The Partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards and options. 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, forwards and options traded by the Partnership involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities. Fluctuations in market risk based upon these factors result in frequent changes in the fair value of 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 experience 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 its cash flow. Profits and losses on open positions of exchange- traded futures, forwards and options 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 table indicates the VaR associated with the Partnership's open positions as a percentage of total net assets by primary market risk category at June 30, 2001 and 2000. At June 30, 2001 and 2000, the Partnership's total capitalization was approximately $18 million and $22 million, respectively. Primary Market June 30, 2001 June 30, 2000 Risk Category Value at Risk Value at Risk Interest Rate (2.71)% (1.30)% Currency (1.35) (1.11) Equity (0.45) (0.74) Commodity (1.14) (1.23) Aggregate Value at Risk (3.41)% (1.98)% 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 June 30, 2001 and 2000 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, forwards and options, 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 quarter-end VaR by presenting the Partnership's high, low and average VaR, as a percentage of total net assets for the four quarterly reporting periods from July 1, 2000 through June 30, 2001. Primary Market Risk Category High Low Average Interest Rate (3.52)% (1.09)% (2.59)% Currency (2.30) (1.35) (1.68) Equity (0.45) - (0.12) Commodity (1.73) (0.61) (1.29) Aggregate Value at Risk (4.90)% (2.35)% (3.62)% 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 usually 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, give 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 caused by market movements may differ from those of the VaR model; ? VaR results reflect past trading positions while future risk depends on future positions; ? VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and ? the historical market risk 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 June 30, 2001 and for the end of the four quarterly reporting periods from July 1, 2000 through June 30, 2001. 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 once 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. At June 30, 2001, the Partnership's cash balance at Morgan Stanley DW was approximately 85% of its total net asset value. 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 to be material. Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality and multiplier features of the Partnership's market- sensitive instruments, in relation to the Partnership's net assets. 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 - con- stitute 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 June 30, 2001, by market sector. It may be anticipated however, that these market exposures will vary materially over time. Interest Rate. The primary market exposure of the Partnership at June 30, 2001 was to the global interest rate complex. Exposure was primarily spread across the Japanese, European and U.S. 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. Demeter anticipates that G-7 interest rates will remain the primary interest rate exposure of the Partnership for the foreseeable future. The changes in interest rates which have the most effect on the Partnership are changes in long-term, as opposed to short-term rates. Most of the speculative futures positions held by the Partnership are in medium to long-term instruments. Consequently, even a material change in short-term rates would have little effect on the Partnership, were the medium to long-term rates to remain steady. Currency. The Partnership's next largest market exposure at June 30, 2001 was 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 second quarter of 2001, the Partnership's major exposures were to the euro currency crosses and outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. 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. Equity. The primary equity exposure at June 30, 2001 was in the global stock index sector. The primary equity exposure was 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 June 30, 2001, the Partnership's primary exposures were to the S&P 500 (U.S.) and Nikkei (Japan) stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the U.S., European and Japanese indices. Static markets would not cause major market changes but would make it difficult for the Partnership to avoid being "whipsawed" into numerous small losses. Commodity Energy. At June 30, 2001, the Partnership's energy exposure was shared primarily by futures contracts in the crude oil and natural gas markets. Price movements in these markets result from political developments in the Middle East, weather patterns, and other economic fundamentals. It is possible that volatility will remain high. Significant profits and losses which have been experienced in the past, are expected to continue to be experienced in this market. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. Soft Commodities and Agriculturals. At June 30, 2001, the Partnership had exposure to the markets that comprise these sectors. Most of the exposure was to the cotton markets. Supply and demand inequalities, severe weather disruption, and market expectations affect price movements in these markets. Metals. The Partnership's metals market exposure at June 30, 2001 was primarily to fluctuations in the price of base metals. During periods of volatility, base metals will affect performance dramatically. The Trading Advisor will from time to time trade precious metals, such as gold. Gold prices continued to be volatile during the quarter. Demeter anticipates that the base metals will remain the primary metals market exposure of the Partnership. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of the Partnership at June 30, 2001: Foreign Currency Balances. The Partnership's primary foreign currency balances at June 30, 2001 were in Japanese yen. The Partnership controls the non-trading risk of these balances by regularly converting these balances back into dollars upon liquidation of their corresponding positions. 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. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS In April 2001, the Appellate Division of New York State dismissed the class action previously disclosed in the Partnership's Form 10-K for the year ended December 31, 2000. Because plaintiffs did not exercise their right to appeal any further, this dismissal constituted a final resolution of the case. Item 2. CHANGES IN SECURITIES AND 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 Partnership registered an additional 6,000,000 Units pursuant to a new Registration Statement on Form S-1, which became effective on March 27, 2000 (SEC File Number 333-91567). The managing underwriter for the Partnership is Morgan Stanley DW. Units are 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 June 30, 2001, 3,785,357.936 Units were sold, leaving 5,214,642.064 Units unsold. The aggregate price of the Units sold through June 30, 2001 was $33,172,952. 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 "Use of Proceeds" section of the prospectus included as part of the above referenced Registration Statement. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits 3.01 Form of Amended and Restated Limited Partnership Agreement of the Partnership, dated as of October 31, 2000, is incorporated by reference to Exhibit A of the Partnership's Prospectus, dated October 11, 2000, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, on October 13, 2000. 3.02 Certificate of Limited Partnership, dated July 15, 1998, is incorporated by reference to Exhibit 3.02 of the Partnership's Registration Statement on Form S-1 (File No. 333-91567) filed with the Securities and Exchange Commission on September 22, 2000. 10.02 Management Agreement, dated as of November 6, 1998, among the Partnership, Demeter Management Corporation and Welton Investment Corporation, is incorporated by reference to Exhibit 10.02 of the Partnership's Registration Statement on Form S-1 (File No. 333-91567) filed with the Securities and Exchange Commission on September 22, 2000. 10.03 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 October 11, 2000, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, on October 13, 2000. 10.04 Amended and Restated Escrow Agreement among the Partnership, Morgan Stanley Dean Witter Charter Graham L.P., Morgan Stanley Dean Witter Charter Millburn L.P., Morgan Stanley Dean Witter Charter DWFCM L.P., Dean Witter Reynolds Inc. and The Chase Manhattan Bank is incorporated by reference to Exhibit 10.04 of the Partnership's Registration Statement on Form S-1 (File No. 333-91567) filed with the Securities and Exchange Commission on March 30, 2001. 10.05 Form of Amended and Restated Customer Agreement among the Partnership and Dean Witter Reynolds Inc., is incorporated by reference to Exhibit 10.05 of the Partnership's Registration Statement on Form S-1 (File No. 333-91567) filed with the Securities and Exchange Commission on September 22, 2000. 10.06 Form of Customer Agreement among the Partnership, Morgan Stanley & Co., Inc., and Dean Witter Reynolds Inc., is incorporated by reference to Exhibit 10.06 of the Partnership's Registration Statement on Form S-1 (File No. 333-91567) filed with the Securities and Exchange Commission on September 22, 2000. 10.07 Form of Customer Agreement among the Partnership, Morgan Stanley & Co. International Limited, and Morgan Stanley & Co., Inc. is incorporated by reference to Exhibit 10.07 of the Partnership's Registration Statement on Form S-1 (File No. 333-91567) filed with the Securities and Exchange Commission on September 22, 2000. 10.08 Form of Foreign Exchange and Options Master Agreement among the Partnership and Morgan Stanley & Co., Inc. is incorporated by reference to Exhibit 10.08 of the Partnership's Registration Statement on Form S-1 (File No.333-91567) filed with the Securities and Exchange Commission on September 22, 2000. 10.09 Subscription Agreement Update Form is incorporated by reference to Exhibit C of the Partnership's Prospectus dated October 11, 2000, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, on October 13, 2000. (B) Reports on Form 8-K. - None. SIGNATURE Pursuant to the requirements 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) August 14, 2001 By:/s/ Raymond E. Koch Raymond E. Koch Chief Financial Officer The General Partner which signed the above is the only party authorized to act for the Registrant. The Registrant has no principal executive officer, principal financial officer, controller, or principal accounting officer and has no Board of Directors.

MORGAN STANLEY DEAN WITTER CHARTER WELTON LP 10-Q