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 period ended September 30, 1999 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 No. 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
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statement of Financial Condition September 30, 1999
(Unaudited)............................................... 2
Statement of Operations for the Quarter Ended
September 30, 1999 (Unaudited)............................ 3
Statement of Operations for the Period from
March 1, 1999 (commencement of operations) to
September 30, 1999
(Unaudited)............................ 4
Statement of Changes in Partners' Capital for
the Period from March 1, 1999 (commencement of
operations) to September 30, 1999 (Unaudited)............. 5
Statement of Cash Flows for the Period from March
1, 1999 (commencement of operations) to
September 30, 1999 (Unaudited)............................ 6
Notes to Financial Statements (Unaudited)...............7-
14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......15-21
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ....................................... 21-33
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..................................... 34
Item 2. Change in Securities and Use of Proceeds............34-35
Item 6. Exhibits and Reports on Form 8-K...................... 35
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
STATEMENT OF FINANCIAL CONDITION
<CAPTION>
September 30,
1999
$
(Unaudited)
ASSETS
<S> <C>
Equity in futures interests trading accounts:
Cash
18,116,662
Net unrealized gain on open contracts
470,344
Net option premiums
(215,869)
Total Trading Equity
18,371,137
Subscriptions receivable
906,618
Interest receivable (DWR and Carr) 68,320
Total Assets
19,346,075
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable
128,135
Accrued brokerage fee (DWR)
109,254
Accrued management fee
31,215
Total Liabilities
268,604
Partners' Capital
Limited Partners (2,258,382.769 Units)
18,870,374
General Partner (24,785.101 Units)
207,097
Total Partners' Capital
19,077,471
Total Liabilities and Partners' Capital
19,346,075
NET ASSET VALUE PER UNIT
8.36
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
For the
Quarter Ended
September 30, 1999
$
REVENUES
<S>
<C>
Trading loss:
Realized (1,102,288)
Net change in unrealized (282,044)
Total Trading Results (1,384,332)
Interest Income (DWR and Carr) 176,916
Total Revenues (1,207,416)
EXPENSES
Brokerage fees (DWR) 296,675
Management fee 84,765
Total Expenses 381,440
NET LOSS (1,588,856)
NET LOSS ALLOCATION
Limited Partners (1,571,130)
General Partner (17,726)
NET LOSS PER UNIT
Limited Partners (.85)
General Partner
(.85)
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
For the Period from
March 1, 1999
(commencement of
operations) to
September 30, 1999
$
REVENUES
<S> <C>
Trading profit (loss):
Realized (2,096,441)
Net change in unrealized 470,344
Total Trading Results (1,626,097)
Interest Income (DWR and Carr) 289,356
Total Revenues (1,336,741)
EXPENSES
Brokerage fees (DWR) 512,045
Management fee 146,299
Total Expenses 658,344
NET LOSS
(1,995,085)
NET LOSS ALLOCATION
Limited Partners
(1,972,182)
General Partner
(22,903)
NET LOSS PER UNIT
Limited Partners
(1.64)
General Partner
(1.64)
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Period from March 1, 1999
(commencement of operations)
to September 30, 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partners' Capital,
Initial Offering 580,145.052 $5,731,450 $70,000
$5,801,450
Offering of Units 1,726,658.495 15,311,038 160,000
15,471,038
Net Loss - (1,972,182) (22,903)
(1,995,085)
Redemptions (23,635.677) (199,932) -
(199,932)
Partners' Capital,
September 30, 1999 2,283,167.870 $18,870,374 $207,097
$19,077,471
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Period from
March 1, 1999
(commencement of
operations) to
September 30, 1999
$
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net loss (
1,995,085)
Noncash item included in net loss:
Net change in unrealized (470,344)
(Increase) decrease in operating assets:
Net option premiums 215,869
Interest receivable (DWR and Carr) (68,320)
Increase in operating liabilities:
Accrued brokerage fee (DWR)
109,254
Accrued management fee
31,215
Net cash used for operating activities
(2,177,411)
CASH FLOWS FROM FINANCING ACTIVITIES
Initial offering
5,801,450
Offering of units
15,471,038
Increase in subscriptions receivable
(906,618)
Increase in redemptions payable 128,135
Redemptions of units
(199,932)
Net cash provided by financing activities
20,294,073
Net increase in cash
18,116,662
Balance at beginning of period
- -
Balance at end of period
18,116,662
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements 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").
1. Summary of Significant Accounting Policies
Organization - Morgan Stanley Dean Witter Charter Welton L.P. is
a limited partnership organized to engage primarily in the
speculative trading of futures and forward contracts, options on
futures contracts and on physical commodities and other commodity
interests, including foreign currencies, financial instruments,
metals, energy and agricultural products (collectively, "futures
interests"). The Partnership commenced operations on March 1,
1999. The Partnership is one of the Morgan Stanley Dean Witter
Charter Series of funds, comprised of the Partnership, Morgan
Stanley Dean Witter Charter Graham L.P., and Morgan Stanley Dean
Witter Charter Millburn L.P. The general partner is Demeter
Management Corporation ("Demeter"). The non-clearing commodity
broker is Dean Witter Reynolds Inc. ("DWR") and an unaffiliated
clearing commodity broker, Carr Futures Inc. ("Carr"), provides
clearing and execution services. Demeter and DWR are wholly-
owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW").
Welton Investment Corporation ("Trading Advisor") is the trading
advisor to the Partnership.
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Demeter is required to maintain a 1% minimum interest in the
equity of the Partnership and income (losses) are shared by the
General and Limited Partners based upon their proportional
ownership interests.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition - Futures interests are open commitments
until settlement date. They are valued at market and the
resulting unrealized gains and losses are reflected in income.
Monthly, DWR pays the Partnership interest income 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 during such month. In addition, DWR credits the
Partnership with 100% of the interest income received from Carr
with respect to the Partnership's Net Assets on deposit with Carr
for the purpose of meeting margin requirements.
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
For purposes of such interest payments, Net Assets do not include
monies due to the Partnership on forward contracts and other
futures interests, but not actually received.
Net Income (Loss) per Unit - Net income (loss) per 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 Partnership's
asset "Equity in futures interests trading accounts" consists of
cash on deposit at DWR and Carr to be used as margin for trading
and the net asset or liability related to unrealized gains or
losses on open contracts.
Brokerage and Related Transaction Fees and Costs - The
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 fee covers all brokerage commissions,
transaction fees and costs and ordinary administrative and
offering expenses.
Operating Expenses - The Partnership incurs a monthly management
fee and may incur an incentive fee as described below. Demeter
bears all other operating expenses.
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Management Fee - The Partnership pays the Trading Advisor a flat-
rate monthly fee of 1/12 of 2% of the Net Assets managed by the
Trading Advisor on the first day of each month (a 2% annual
rate).
Incentive Fee - The Partnership pays the Trading Advisor a
monthly incentive fee equal to 20% of "Trading Profits" as
defined in the Partnership's Prospectus as of the end of each
calendar month. If the Trading Advisor has experienced losses
with respect to Net Assets at the end of any calendar month, the
Trading Advisor must earn back such losses before the Trading
Advisor is eligible for an incentive fee.
Income Taxes - No provision for income taxes has been made in the
accompanying financial statements, as partners are individually
responsible for reporting income or loss based upon their
respective share of the Partnership's revenues and expenses for
income tax purposes.
Distributions - Distributions, other than on redemptions of
Units, are made on a pro-rata basis at the sole discretion of
Demeter. No distributions have been made to date.
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Continuing Offering - Units 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.
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 becomes 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 Partnership. 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 subject to a redemption charge.
Exchanges - On the last day of the first month which occurs more
than six months after a person first becomes a Limited Partner in
the Partnership, and at the end of each month thereafter, Limited
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Partners may transfer their investment among the Morgan Stanley
Dean Witter Charter Series (subject to certain restrictions
outlined in the Limited Partnership Agreement) without paying
additional charges.
Dissolution of the Partnership - The Partnership will terminate
on December 31, 2035 or at an earlier date if certain conditions
occur as defined in the Partnership's Limited Partnership
Agreement.
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in future
interests trading accounts to meet margin requirements as needed.
DWR and Carr pay interest on these funds as described in Note 1.
The Partnership pays a brokerage fee to DWR, also described in
Note 1.
3. Financial Instruments
The Partnership trades 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. Futures and forwards
represent contracts for delayed delivery of an instrument at a
specified date and price. Risk arises from changes in the value
of these contracts and the potential inability of counterparties
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
to perform under the terms of the contracts. There are numerous
factors which may significantly influence the market value of
these contracts, including interest rate volatility.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership elected to adopt the provisions of SFAS No. 133
beginning with its first calendar quarter-end financial
statements dated March 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 Partnership's financial
statements.
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statement of Financial Condition and totaled $470,344 at
September 30, 1999.
The entire $470,344 net unrealized gain on open contracts at
September 30, 1999 related to exchange-traded futures and futures-
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
styled options contracts. Exchange-traded futures and futures-
styled options contracts held by the Partnership at September 30,
1999 mature through March 2000.
The Partnership is subject to the 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. DWR and Carr 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 DWR and
Carr, as a futures commission merchant for all of the
Partnership's exchange-traded futures and futures-styled options
contracts, are required, pursuant to regulations of the Commodity
Futures Trading 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
$18,587,006 at September 30, 1999.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions,
exchanges and sales of additional Units will affect the amount of
funds available for investment in futures interests in subsequent
periods. Since they are at the discretion of Limited Partners,
it is not possible to estimate the amount and therefore, the
impact of future redemptions, exchanges or sales of additional
Units.
Results of Operations
For the Quarter and the Period Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income of
$1,207,416 and posted a decrease in Net Asset Value per Unit.
The most significant losses were recorded from trading global
stock index futures, specifically S&P 500, Hang Seng and DAX
Index futures, as short-term price volatility in these markets
throughout a majority of the quarter resulted in difficulty for
Welton's trend-following trading approach and concentrated
participation in this market sector. Additional losses were
experienced from short positions in the European common currency
<PAGE>
and the Swiss franc as the previous downward trend in the value
of these currencies versus the U.S. dollar reversed higher during
July due to bullish economic data out of Europe and inflationary
concerns in the U.S. These losses were mitigated by currency
gains from long Japanese yen positions as the value of the yen
strengthened versus the U.S. dollar during the quarter amid
optimism regarding the Japanese economy. Smaller losses incurred
from trading Australian interest rate futures throughout the
quarter, as well as British interest rate futures during August,
more than offset profits recorded from short positions in German
interest rate futures during July and September. A portion of
the Partnership's overall losses for the quarter was offset by
gains recorded from long positions in crude oil and its refined
products, unleaded gas and heating oil, as oil prices climbed
higher during August and September amid a tightness in supplies
and a commitment by OPEC officials to continue output cuts
through the first quarter of 2000. Additional profits were
recorded from long positions in nickel futures as base metal
prices increased as a result in rising demand and shrinking
supply. Total expenses for the three months ended September 30,
1999 were $381,440, resulting in a net loss of $1,588,856. The
value of a Unit decreased from $9.21 at June 30, 1999 to $8.36 at
September 30, 1999.
For the period from March 1, 1999 (commencement of operations) to
September 30, 1999, the Partnership recorded total trading losses
net of interest income of $1,336,741 and posted a decrease in Net
<PAGE>
Asset Value per Unit. The most significant losses were recorded
from trading global stock index futures, specifically S&P 500,
Hang Seng and DAX Index futures, as short-term price volatility
in these markets throughout a majority of the third quarter
resulted in difficulty for Welton's trend-following trading
approach and concentrated participation in this market sector.
Additional losses were experienced in the currency markets from
short positions in the European common currency and the Swiss
franc as the previous downward trend in the value of these
currencies versus the U.S. dollar reversed higher during July due
to bullish economic data out of Europe and inflationary concerns
in the U.S. These losses were mitigated by currency gains
recorded from long Japanese yen positions as the value of the yen
increased versus the U.S. dollar during the third quarter on
optimism regarding Japan's economic recovery. A portion of the
Partnership's overall losses for the year was offset by gains
recorded from long positions in crude oil and its refined
products, unleaded gas and heating oil, as prices trended higher
during August and September due to declining supply and a
commitment by OPEC officials to adhere to agreed-upon output
cuts. Additional profits were recorded during June from short
positions in Spanish and German bond futures as prices declined
amid dampened sentiment regarding economic unity in that region
and on fears of an interest rate hike in the U.S. Additional
profits were recorded from short positions in German interest
rate futures during July and September as prices continued lower
<PAGE>
on fears that the European Central Bank would also raise interest
rates. Total expenses for the period from March 1, 1999
(commencement of operations) to September 30, 1999 were $658,344,
resulting in a net loss of $1,995,085. The value of a Unit
decreased from $10.00 at March 1, 1999 (commencement of
operations) to $8.36 at September 30, 1999.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter.
It has developed its own Year 2000 compliance plan to deal with
the problem and had the plan approved by the company's executive
management, Board of Directors and Information Technology
Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that
affect the Partnership. This includes hardware and software
<PAGE>
upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or the
Trading Advisor - could result in a material financial risk to
the Partnership. All U.S. futures exchanges are subject to
monitoring by the CFTC of their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject
to market-wide testing of their Year 2000 compliance during 1999.
Demeter intends to monitor the progress of Carr and the Trading
Advisor throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Advisor.
A worst case scenario would be one in which trading of contracts
on behalf of the Partnership becomes impossible as a result of
the Year 2000 problem encountered by any third parties. A less
catastrophic but more likely scenario would be one in which
trading opportunities diminish as a result of technical problems
resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun developing various "contingency
plans" in the event that the systems of such third parties fail.
Demeter intends to consult closely with MSDW in implementing
those plans. Despite the best efforts of both Demeter and MSDW,
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
<PAGE>
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 in certain
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market-sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of
market-sensitive instruments is integral, not incidental, to the
Partnership's primary business activities.
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
<PAGE>
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned 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 effects among
the Partnership's existing open positions, the volatility present
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the
Partnership's market risk must be qualified by the inherent
uncertainty of its speculative trading, which may cause future
losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market-sensitive instruments.
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
<PAGE>
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 on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
and the Partnership's cash flow, as profits and losses on open
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisor is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a
confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in
trading portfolio value. The VaR model generally 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, as well
as correlation that exists among these variables. The
hypothetical changes in portfolio value are based on daily
<PAGE>
observed percentage changes in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The Partnership's
one-day 99% VaR corresponds to the negative change in portfolio
value that, based on observed market risk factor moves, would
have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
VaR model is used to 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 market category as of September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$19 million.
Primary Market September 30, 1999
Risk Category Value at Risk
Interest Rate (1.58)%
Currency (1.22)
Equity (0.30)
Commodity (0.95)
Aggregate Value at Risk (2.49)%
<PAGE>
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual 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 September 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole business
is the speculative trading of primarily futures interests, the
composition of its portfolio of open positions can change
significantly over any given time period or even within a single
trading day. Such changes in open positions could materially
impact market risk as measured by VaR either positively or
negatively.
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 three calendar quarter reporting periods from
March 1, 1999 through September 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (1.58)% (0.44)% (0.96)%
Currency (1.22) (0.99) (1.11)
Equity (4.75) (0.16) (1.74)
Commodity (0.95) (0.19) (0.58)
Aggregate Value at Risk (5.02)% (1.08)% (2.86)%
<PAGE>
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, as such margin requirements generally range between
2% and 15% of contract face value. Additionally, due to the use
of leverage, the face value of the market sector instruments held
by the Partnership is typically many times the total
capitalization of the Partnership. The financial magnitude of
the Partnership's open positions thus creates a "risk of ruin"
not typically found in other investment vehicles. Due to the
relative size of the positions held, certain market conditions
may cause the Partnership to incur losses greatly in excess of
VaR within a short period of time. The foregoing VaR table, as
well as the past performance of the Partnership, gives no
indication of such "risk of ruin". In addition, VaR risk measures
should be interpreted in light of the methodology's limitations,
which include the following: past changes in market risk factors
will not always yield accurate predictions of the distributions
and correlations of future market movements; changes in portfolio
value in response to market movements may differ from the
responses implicit in a VaR model; published 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.
<PAGE>
The foregoing VaR tables present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at September 30, 1999 and for the end of the
three calendar quarter reporting periods from March 1, 1999
through September 30, 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 and monitor
risk and there can be no assurance that the Partnership's actual
losses on a particular day will not exceed the VaR amounts
indicated below 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. However, such balances, as well
as any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
83%) 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 the
potential losses caused by such movements, taking into account
the leverage, optionality and multiplier features of the
Partnership's market-sensitive instruments.
<PAGE>
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) 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 expro-
priations, illiquid markets, the emergence of dominant
fundamental factors, political upheavals, changes in historical
price relationships, an influx of new market participants,
increased regulation and many other factors could result in
material losses as well as in material changes to the risk
exposures and the risk management strategies of the Partnership.
Investors must be prepared to lose all or substantially all of
their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of September 30, 1999, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
<PAGE>
Interest Rate. The primary market exposure in the
Partnership at September 30, 1999 was in the interest rate
sector. Exposure was spread across the Spanish, German,
Australian, U.S. and Japanese interest rate sectors. Interest
rate movements directly affect the price of the sovereign bond
futures positions held by the Partnership and indirectly affect
the value of its stock index and currency positions. Interest
rate movements in one country as well as relative interest rate
movements between countries materially impact the Partnership's
profitability. The Partnership's primary interest rate exposure
is generally to interest rate fluctuations in the United States
and the other G-7 countries. However, the Partnership also takes
futures positions in the government debt of smaller nations -
e.g. Australia, New Zealand and Spain. Demeter anticipates that
G-7 and Australian interest rates will remain the primary
interest rate exposures of the Partnership for the foreseeable
future. The changes in interest rates which have the most effect
on the Partnership are changes in long-term, as opposed to short-
term, rates. Most of the speculative futures positions held by
the Partnership are in medium - to long-term instruments.
Consequently, even a material change in short-term rates would
have little effect on the Partnership, were the medium - to long-
term rates to remain steady.
Currency. The second largest market exposure this quarter
was in the currency complex. The Partnership's currency exposure
is to exchange rate fluctuations, primarily fluctuations which
disrupt the historical pricing relationships between different
<PAGE>
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 third 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.
Equity. The primary equity exposure is to equity price risk
in the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based
indices. As of September 30, 1999, the Partnership's primary
exposures were in the NASDAQ (U.S.), CAC 40 (France) 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.
and European indices. (Static markets would not cause major
market changes but would make it difficult for the Partnership to
avoid being "whipsawed" into numerous small losses).
<PAGE>
Commodity.
Energy. On September 30, 1999, the Partnership's energy
exposure was shared by futures contracts in the crude and heating
oil, and unleaded 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 about 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.
Metals. The Partnership's primary metals market exposure is
to fluctuations in the price of gold and silver. Although the
Trading Advisor will, from time to time, trade base metals such
as aluminum, copper, zinc, nickel and lead, the principal market
exposures of the Partnership have consistently been in precious
metals, gold and silver. A significant amount of exposure was
evident in the gold market as the price of gold increased
dramatically following bullish comments by the European Central
Bank. Silver prices were also volatile over this period, and the
Trading Advisor has taken substantial positions as perceived
market opportunities developed. Demeter anticipates that gold
and silver will remain the primary metals market exposure for the
Partnership.
Soft Commodities and Agriculturals. On September 30, 1999,
the Partnership had a reasonable amount of exposure in the
markets that comprise these sectors. Most of the exposure,
<PAGE>
however, was in the coffee, corn and wheat markets. Supply and
demand inequalities, severe weather disruption and market
expectations affect price movements in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 1999:
Foreign Currency Balances. The Partnership's primary
foreign currency balances are in Japanese yen, Mexican pesos and
Swiss francs. The Partnership controls the non-trading risk of
these balances by regularly converting these balances back into
dollars upon liquidation of the respective positions.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor
attempt to manage the risk of the Partnership's open positions
are essentially the same in all market categories traded. Demeter
attempts to manage the Partnership's market exposure by (i)
diversifying the Partnership's assets among different market
sectors and trading approaches, and (ii), monitoring the
performance of the Trading Advisor on a daily basis. 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.
<PAGE>
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash, which is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's March 31, 1999 Form 10-Q:
In the New York action, the motion to dismiss the amended
complaint with prejudice has been fully briefed and argued and
the Dean Witter Parties are awaiting the New York Supreme Court's
decision.
In the California action, on September 24, 1999, the Superior
Court in the State of California entered an order dismissing the
consolidated amended complaint without prejudice on consent.
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 managing underwriter is DWR.
Through September 30, 1999, 2,282,018.446 Units were sold,
leaving 717,981.554 Units unsold as of September 30, 1999. The
aggregate price of the Units sold through September 30, 1999 was
$21,042,488.
<PAGE>
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" sections of the
prospectus included as part of the above-referenced Registration
Statement.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None
(B) Reports on Form 8-K. - None
<PAGE>
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)
November 12, 1999 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
Morgan Stanley Dean Witter Charter Welton L.P. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,116,662
<SECURITIES> 0
<RECEIVABLES> 974,938<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,346,075<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,346,075<F3>
<SALES> 0
<TOTAL-REVENUES> (1,336,711)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 658,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,995,085)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,995,085)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,995,085)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscriptions receivable of $906,618 and interest
receivable of $68,320.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $470,344 and net option premiums
of $(215,869).
<F3>Liabilities include accrued brokerage fee of $109,254, redemptions
payable of $128,135, and accrued management fee of $31,215.
<F4>Total revenue includes realized trading revenue of $(2,096,441), net
change in unrealized of $470,344 and interest income of $289,356.
</FN>
</TABLE>
