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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the year ended December 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from
________________to___________________
Commission File Number 0-19511
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
(Exact name of registrant as specified in its Limited Partnership
Agreement)
DELAWARE 13-
3619290
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, - 62nd Flr., New York, N.Y.
10048
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code
(212) 392-5454
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class
on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check-mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check-mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment of this Form 10-K. [X]
State the aggregate market value of the Units of Limited
Partnership Interest held by non-affiliates of the registrant.
The aggregate market value shall be computed by reference to the
price at which units were sold as of a specified date within 60
days prior to the date of filing: $216,881,637 at January 31,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1999
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . .
. . . . . . . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .2-5
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . .
. . . . . .. . 6-7
Item 4. Submission of Matters to a Vote of Security Holders .
. . . . . . . . . 8
Part II.
Item 5. Market for the Registrant's Partnership Units
and Related Security Holders . . . . . . . . . . . . .
. . . . . . . . 9-10
Item 6. Selected Financial Data . . . . . . . . . . . . . . .
. . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . .
. . .. . . 12-24
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . .
. . . . . . . 24-37
Item 8. Financial Statements and Supplementary Data. . . . .
. . . . . . . . .37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . .
. . . . . . . .37
Part III.
Item 10. Directors and Executive Officers of the Registrant . .
. . .. . . .38-42
Item 11. Executive Compensation . . . . . . . . . . . . . . .
. . . .. . . . . 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . .
. . . . . . . . .42
Item 13. Certain Relationships and Related Transactions . . .
. . . . . . . 43
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . .
. . . . . . . . . . 44
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference as follows:
Documents Incorporated Part
of Form 10-K
Partnership's Prospectus dated
January 21, 1999 I
Partnership's Supplement to the
Prospectus dated April 30, 1999 I
Annual Report to Morgan Stanley
Dean Witter Spectrum Series
Limited Partners for the
year ended December 31, 1999 II, III and
IV
PART I
Item 1. BUSINESS
(a) General Development of Business. Morgan Stanley Dean Witter
Spectrum Select L.P. (formerly, Dean Witter Spectrum Select L.P.)
(the "Partnership") is a Delaware limited partnership organized
to engage primarily in the speculative trading of futures and
forward contracts, options on futures contracts, physical
commodities and other commodity interests, including, but not
limited to foreign currencies, financial instruments, metals,
energy and agricultural products (collectively, "futures
interests"). The Partnership is one of the Morgan Stanley Dean
Witter Spectrum Series of funds, which is comprised of the
Partnership, Morgan Stanley Dean Witter Spectrum Global Balanced
L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P. and
Morgan Stanley Dean Witter Spectrum Technical 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. Both Demeter and DWR are wholly-owned
subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The
trading advisors to the Partnership are EMC Capital Management,
Inc., Rabar Market Research, Inc. and Sunrise Capital Management,
Inc. (collectively, the "Trading Advisors").
The Partnership became one of the Spectrum Series of funds on
June 1, 1998. Each outstanding unit of limited partnership
interest ("Unit(s)") in the Partnership was converted into 100
Units and its name changed from Dean Witter Select Futures Fund
L.P. The number of Units outstanding, Net Income (Loss) per Unit
and Net Asset Value per Unit in the accompanying financial
statements have been adjusted for all reporting periods to
reflect this conversion.
The Partnership registered 5,000,000 additional Units pursuant to
a Registration Statement on Form S-1 (SEC File No. 333-68773),
which became effective January 21, 1999. Units are offered at
monthly closings at a price equal to 100% of the Net Asset Value
per Unit at the close of business on the last day of each month.
The managing underwriter for the Spectrum Series is DWR.
The Partnership's Net Asset Value per Unit at December 31, 1999
was $22.00, representing a decrease of 7.56 percent from the Net
Asset Value per Unit of $23.80 at December 31, 1998. For a more
detailed description of the Partnership's business, see
subparagraph (c).
(b) Financial Information about Industry Segments. For financial
information reporting purposes, the Partnership is deemed to
engage in one industry segment, the speculative trading of
futures interests. The relevant financial information is
presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the
business of speculative trading of futures interests, pursuant to
trading instructions provided by the Trading Advisors. For a
detailed description of the different facets of the Partnership's
business, see those portions of the Partnership's prospectus,
dated January 21, 1999 (the "Prospectus") and the Partnership's
Supplement to the Prospectus dated April 30, 1999 (the
"Supplement"), incorporated by reference in this Form 10-K, set
forth below.
Facets of Business
1. Summary 1. "Summary of the Prospectus"
(Pages 1-6 of the
Prospectus and Pages S-1 to
S-2 of the Supplement).
2. Futures, Options and 2. "The Futures, Options and
Forward Markets Forward Markets"
(Pages 83-87 of the
Prospectus).
3. Partnership's Trading 3. "Investment Programs, Use
Arrangements and of Proceeds and Trading
Policies Policies" (Pages 20-
25
of the Prospectus and Page
S-4 of the Supplement).
"The Trading Advisors"
(Pages 49-79 of the
Prospectus and Pages S-21
to S-32 of the Supplement).
4. Management of the Part- 4. "The Trading Advisors -
nership The Management Agree-
ments" (Page 49 of the
Prospectus). "The
General Partner"
(Pages 47-48 of the
Prospectus and Page S-
20
of the Supplement),
"The
Commodity Brokers"
(Page 82 of the
Prospectus) and "The Limited
Partnership Agreements" (Pages
87-
91 of the Prospectus).
5. Taxation of the Partner- 5. "Material Federal Income
ship's Limited Partners Tax Considerations" and
"State and Local Income
Tax Aspects" (Pages 96-
102 of the Prospectus).
(d) Financial Information About Foreign and Domestic Operations
and Export Sales.
The Partnership has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity
brokers) enters into forward contract transactions where foreign
banks are the contracting party and trades in futures interests
on foreign exchanges.
Item 2. PROPERTIES
The executive and administrative offices are located within the
offices of DWR. The DWR offices utilized by the Partnership are
located at Two World Trade Center, 62nd Floor, New York, NY
10048.
Item 3. LEGAL PROCEEDINGS
The class actions first filed in 1996 in California and in New
York State courts were each dismissed in 1999. However, in the
New York State class action, plaintiffs appealed the trial
court's dismissal of their case on March 3, 2000.
On September 6, 10, and 20, 1996, and on March 13, 1997,
purported class actions were filed in the Superior Court of the
State of California, County of Los Angeles, on behalf of all
purchasers of interests in limited partnership commodity pools
sold by DWR. Named defendants include DWR, Demeter, Dean Witter
Futures & Currency Management Inc. ("DWFCM"), MSDW, the
Partnership (under its original name, "Dean Witter Select Futures
Fund L.P."), certain limited partnership commodity pools of which
Demeter is the general partner (all such parties referred to
hereafter as the "Morgan Stanley Dean Witter Parties") and
certain trading advisors to those pools. On June 16, 1997, the
plaintiffs in the above actions filed a consolidated amended
complaint, alleging, among other things, that the defendants
committed fraud, deceit, negligent misrepresentation, various
violations of the California Corporations Code, intentional and
negligent breach of fiduciary duty, fraudulent and unfair
business practices, unjust enrichment, and conversion in the sale
and operation of the various limited partnership commodity pools.
The complaints seek unspecified amounts of compensatory and
punitive damages and other
relief. The court entered an order denying class certification
on August 24, 1999. On September 24, 1999, the court entered an
order dismissing the case without prejudice on consent. Similar
purported class actions were also filed on September 18 and 20,
1996, in the Supreme Court of the State of New York, New York
County, and on November 14, 1996 in the Superior Court of the
State of Delaware, New Castle County, against the Morgan Stanley
Dean Witter Parties and certain trading advisors on behalf of all
purchasers of interests in various limited partnership commodity
pools, including the Partnership, sold by DWR. A consolidated and
amended complaint in the action pending in the Supreme Court of
the State of New York was filed on August 13, 1997, alleging that
the defendants committed fraud, breach of fiduciary duty, and
negligent misrepresentation in the sale and operation of the
various limited partnership commodity pools. The complaints seek
unspecified amounts of compensatory and punitive damages and
other relief. The New York Supreme Court dismissed the New York
action in November 1998, but granted plaintiffs leave to file an
amended complaint, which they did in early December 1998. The
defendants filed a motion to dismiss the amended complaint with
prejudice on February 1, 1999. By decision dated December 21,
1999, the New York Supreme Court dismissed the case with
prejudice.
In addition, on December 16, 1997, upon motion of the plaintiffs,
the action pending in the Superior Court of the State of Delaware
was voluntarily dismissed without prejudice.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS
(a) Market Information
There is no established public trading market for Units of the
Partnership.
(b) Holders
The number of holders of Units at December 31, 1999 was
approximately 16,182.
(c) Distributions
No distributions have been made by the Partnership since it
commenced trading operations on August 1, 1991. Demeter has sole
discretion to decide what distributions, if any, shall be made to
investors in the Partnership. Demeter currently does not intend
to make any distribution of Partnership profits.
(d) Use of Proceeds
Units are sold at monthly closings as of the last day of each
month at a price equal to 100% of the Net Asset Value per Unit as
of the date of such monthly closing. Through December 31,
1999, 18,162,414.573 Units were sold, leaving 2,951,552.527 Units
unsold as of December 31, 1999. The aggregate price of the Units
sold through December 31, 1999 was $281,081,631.
Since no expenses are chargeable against proceeds, 100% of the
proceeds of the offering have been applied to the working capital
of the Partnership for use in
accordance with the "Investment Programs, Use of Proceeds and
Trading Policies" section of the Prospectus and Supplement.
Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31,
1999 1998 1997 1996 1995
Total Revenues
(including
interest) 4,778,950 41,778,732 26,495,529
22,046,523 69,299,562
Net Income
(Loss) (16,694,414) 22,695,060 9,943,717 5,414,041
39,054,115
Net Income
(Loss) Per
Unit (Limited
& General
Partners) (1.80) 2.95 1.22 .98
3.56
Total Assets 219,366,812 202,668,038 169,541,807 167,588,012
179,342,999
Total Limited
Partners'
Capital 210,877,519 196,915,644 163,999,307161,174,820
173,965,425
Net Asset Value
Per Unit 22.00 23.80 20.85 19.62
18.64
Note: Net Income (Loss) per Unit and Net Asset Value per Unit have been
restated
for all periods to reflect the 1998 one to 100 Unit conversion.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and Carr as clearing broker in separate futures
trading accounts established for each Trading Advisor, which
assets are used as margin to engage in trading. The assets are
held in either non-interest-bearing bank accounts or in
securities and instruments permitted by the Commodity Futures
Trading Commission ("CFTC") for investment of customer segregated
or secured funds. The Partnership's assets held by the commodity
brokers may be used as margin solely for the Partnership's
trading. Since the Partnership's sole purpose is to trade in
futures, forwards, and options, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures, forwards, and options
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be
taken nor liquidated unless traders are willing to effect trades
at or within the limit. Futures prices have occasionally moved
the daily limit for several consecutive days with little or
no trading. These market conditions could prevent the
Partnership from promptly liquidating its futures or options
contracts and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources. The Partnership does not have, or expect to
have, any capital assets. Redemptions, exchanges and sales of
additional Units in the future will affect the amount of funds
available for investments in futures interests in subsequent
periods. It is not possible to estimate the amount and
therefore, the impact of future redemptions.
Results of Operations.
General. The Partnership's results depend on its Trading
Advisors and the ability of each Trading Advisors' 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 years ended December 31, 1999 and a general discussion
of its trading activities during each period. It is important to
note, however, that the Trading Advisors trade 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 Advisors 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
Advisors' trading activities on behalf of the Partnership as a
whole and how the Partnership has performed in the past.
At December 31, 1999, the Partnership's total capital was
$213,805,674, an increase of $13,723,158 from the Partnership's
total capital of $200,082,516 at December 31, 1998. For the year
ended December 31, 1999, the Partnership generated a net loss of
$16,694,414, total subscriptions aggregated $51,589,367 and total
redemptions aggregated $21,171,795.
For the year ended December 31, 1999, the Partnership recorded
total trading revenues, including interest income, of $4,778,950
and posted a decrease in Net Asset Value per Unit. The
Partnership recorded a net loss during 1999 with losses of
approximately 3.27% being experienced primarily in the global
interest rate futures markets, particularly from short-term price
volatility in U.S. and European interest rate futures. Losses
were recorded during September from short positions in Australian
bond futures as prices spiked higher on technically based buying
and short covering. Losses of approximately 2.07% were also
recorded from Japanese government bond futures primarily from
short positions early in the first quarter as prices surged
higher in response to the Bank of Japan's aggressive easing of
monetary policy. Additional losses were experienced later in the
first quarter from newly established long positions as prices
retreated following comments by Bank of Japan Governor Hayami
that he expected interest rates in Japan to rise over time. In
the metals markets, losses of approximately 1.33% were
experienced, particularly during the month of March from long
silver futures positions as prices declined after Berkshire
Hathaway's annual report failed to provide any new information on
the company's silver positions. During October, additional
losses were recorded from long silver futures positions as prices
decreased following a reversal lower in gold prices. Offsetting
gains were recorded from long positions in gold futures as gold
prices soared during September following the Bank of England's
second gold auction and an announcement by several European
central banks stating that they were to
restrict the sales of gold reserves for five years. Gains of
approximately 3.11% recorded in the energy markets helped to
mitigate overall Partnership losses for the year. Long futures
positions in crude oil and its refined products proved profitable
as oil prices trended significantly higher largely attributed to
the news that both OPEC and non-OPEC countries had reached and
adhered to an agreement to cut total output. Total expenses for
the year were $21,473,364, resulting in a net loss of
$16,694,414. The value of a Unit decreased from $23.80 at
December 31, 1998 to $22.00 at December 31, 1999.
At December 31, 1998, the Partnership's total capital was
$200,082,516, an increase of $33,309,195 from the Partnership's
total capital of $166,773,321 at December 31, 1997. For the year
ended December 31, 1998, the Partnership generated net income of
$22,695,060, total subscriptions aggregated $30,297,590 and total
redemptions aggregated $19,683,455.
For the year ended December 31, 1998, the Partnership recorded
total trading revenues, including interest income, of $41,778,732
and posted an increase in Net Asset Value per Unit. 1998 was a
profitable year for the Partnership with the majority of the
gains of approximately 18.62% being recorded in the global
interest rate futures markets primarily from long positions in
European, particularly German and French, U.S. and Japanese bond
futures. Bond prices rallied in late August as global stock
prices plunged, especially after Russia's decision to halt
trading in foreign currencies paralyzed that
country's banking system and set off a flight into the safest
investments. Substantial gains in the financial futures markets
carried further throughout September as volatility in the global
financial markets and worldwide economic deterioration continued
to drive investors to these "safe havens". Total expenses for
the year were $19,083,672, resulting in net income of
$22,695,060. The value of a Unit increased from $20.85 at
December 31, 1997 to $23.80 at December 31, 1998.
At December 31, 1997, the Partnership's total capital was
$166,773,321, an increase of $2,987,036 from the Partnership's
total capital of $163,786,285, at December 31, 1996. For the
year ended December 31, 1997, the Partnership generated net
income of $9,943,717, total subscriptions aggregated $12,056,614
and total redemptions aggregated $19,013,295.
For the year ended December 31, 1997, the Partnership recorded
total trading revenues including interest income of $26,495,529
and posted an increase in Net Asset Value per Unit. The
Partnership recorded net profits during 1997. Gains of
approximately 5.11% were recorded in the currency markets
primarily as a result of a strengthening in the value of the U.S.
dollar versus the Japanese yen and most major world currencies
throughout the year. Additional gains were recorded from long
global interest rate futures positions as U.S., Australian and
European interest rate futures trended higher in July. A portion
of these gains was offset by losses of approximately 4.12%
experienced primarily from
sharp trend reversals and short-term volatile price movement in
global bond futures during April and August. Overall, the
Partnership's ability to capture profits in the currency and
financial futures complexes more than offset smaller losses
incurred from trendless price movement in most traditional
commodities, particularly energy, approximately 2.19%, livestock,
approximately 0.36% and agricultural markets, approximately
0.06%. Total expenses for the year were $16,551,812, resulting
in net income of $9,943,717. The value of a Unit increased from
$19.62 at December 31, 1996 to $20.85 at December 31, 1997.
Note: All periods prior to May 31, 1998 have been restated to
reflect the one to 100 Unit conversion.
The Partnership's overall performance record represents varied
results of trading in different futures interests markets. For a
further description of 1999 trading results, refer to the letter
to the Limited Partners in the accompanying Annual Report to
Limited Partners for the year ended December 31, 1999, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K.
The Partnership's gains and losses are allocated among its
partners for income tax purposes.
Credit Risk.
Financial Instruments. The Partnership is a party to financial
instruments
with elements of off-balance sheet market and credit risk. The
Partnership may trade futures, forwards, and options in a
portfolio of agricultural commodities, energy products, foreign
currencies, interest rates, precious and
base metals, soft commodities, and stock indices. In entering
into these contracts, the Partnership is subject to the market
risk that such contracts may be significantly influenced by
market conditions, such as interest rate volatility, resulting in
such contracts being less valuable. If the markets should move
against all of the positions held by the Partnership at the same
time, and if the Trading Advisors were unable to offset positions
of the Partnership, the Partnership could lose all of its assets
and investors would realize a 100% loss.
In addition to the Trading Advisors' internal controls, the
Trading Advisors must comply with the trading policies of the
Partnership. These trading policies include standards for
liquidity and leverage with which the Partnership must comply.
The Trading Advisors and Demeter monitor the Partnership's
trading activities to ensure compliance with the trading
policies. Demeter may require the Trading Advisors to modify
positions of the Partnership if Demeter believes they violate the
Partnership's trading policies.
In addition to market risk, in entering into futures, forwards,
and options contracts there is a credit risk to the Partnership
that the counterparty on a
contract will not be able to meet its obligations to the
Partnership. The ultimate counterparty or guarantor of the
Partnership for futures contracts traded in the United States and
the foreign exchanges on which the Partnership trades is the
clearinghouse associated with such exchange. In general, a
clearinghouse is backed by the membership of the exchange and
will act in the event of non-performance by one of its members or
one of its member's customers, which should significantly reduce
this credit risk. For example, a clearinghouse may cover a
default by drawing upon a defaulting member's mandatory
contributions and/or non-defaulting members' contributions to a
clearinghouse guarantee fund, established lines or letters of
credit with banks, and/or the clearinghouse's surplus capital and
other available assets of the exchange and clearinghouse, or
assessing its members. In cases where the Partnership trades off-
exchange forward contracts with a counterparty, the sole recourse
of the Partnership will be the forward contracts counterparty.
There is no assurance that a clearinghouse or exchange will meet
its obligations to the Partnership, and Demeter and the commodity
brokers will not indemnify the Partnership against a default by
such parties. Further, the law is unclear as to whether a
commodity broker has any obligation to protect its customers from
loss in the event of an exchange or clearinghouse defaulting on
trades effected for the broker's customers. Any such obligation
on the part of a broker appears even less clear where the default
occurs in a non-U.S. jurisdiction.
Demeter deals with these credit risks of the Partnership in
several ways. First, it monitors the Partnership's credit
exposure to each exchange on a daily basis, calculating not only
the amount of margin required for it but also the amount of its
unrealized gains at each exchange, if any. The commodity brokers
inform the Partnership, as with all their customers, of its net
margin requirements for all its existing open positions, but do
not break that net figure down, exchange by exchange. Demeter,
however, has installed a system which permits it to monitor the
Partnership's potential margin liability, exchange by exchange.
As a result, Demeter is able to monitor the Partnership's
potential net credit exposure to each exchange by adding the
unrealized trading gains on that exchange, if any, to the
Partnership's margin liability thereon.
Second, the Partnership's trading policies limit the amount of
its Net Assets that can be committed at any given time to futures
contracts and require, in addition, a minimum amount of
diversification in the Partnership's trading, usually over
several different products. One of the aims of such trading
policies has been to reduce the credit exposure of the
Partnership to a single exchange and, historically, the
Partnership's exposure to any one exchange has typically amounted
to only a small percentage of its total Net Assets. On those
relatively few occasions where the Partnership's credit exposure
may climb above such level, Demeter deals with the situation on a
case by case basis, carefully weighing whether the increased
level of credit exposure
remains appropriate. Material changes to the trading policies
may be made only with the prior written approval of the limited
partners owning more than 50% of Units then outstanding.
Third, Demeter has secured, with respect to Carr acting as the
clearing broker for the Partnership, a guarantee by Credit
Agricole Indosuez, Carr's parent, of the payment of the "net
liquidating value" of the transactions (futures, options and
forward contracts) in the Partnership's account.
With respect to forward contract trading, the Partnership trades
with only those counterparties which Demeter, together with DWR,
have determined to be creditworthy. At the date of this filing,
the Partnership deals only with Carr as its counterparty on
forward contracts. The guarantee by Carr's parent, discussed
above, covers these forward contracts.
See "Financial Instruments" under Notes to Financial Statements
in the Partnership's Annual Report to Limited Partners for the
year ended December 31, 1999, which is incorporated by reference
to Exhibit 13.01 of this Form
10-K.
Year 2000. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. The Year 2000 issue
arose since many of the world's computer systems
(including those in non-information technology systems)
traditionally recorded years in a two-digit format. If not
addressed, such computer systems may have been unable to properly
interpret dates beyond the year 1999, which may have led to
business disruptions in the U.S. and internationally. Such
disruptions could have adversely affected the handling or
determination of futures trades and prices and other services for
the Partnership. Accordingly, Demeter has fully participated in
a firmwide initiative established by MSDW to address issues
associated with the Year 2000. As part of this initiative, MSDW
reviewed its global software and hardware infrastructure for
mainframe, server and desktop computing environments and engaged
in extensive remediation and testing. The Year 2000 initiative
also encompassed the review of agencies, vendors and facilities
for Year 2000 compliance.
Since 1995, MSDW prepared actively for the Year 2000 issue to
ensure that it would have the ability to respond to any critical
business process failure, to prevent the loss of workspace and
technology, and to mitigate any potential financial loss or
damage to its global franchise. Where necessary, contingency
plans were expanded or developed to address specific Year 2000
risk scenarios, supplementing existing business policies and
practices. In conjunction with MSDW's Year 2000 preparations,
Demeter monitored the progress of Carr and each Trading Advisor
throughout 1999 in their Year 2000 compliance and, where
applicable, tested its external interfaces, with Carr and the
Trading Advisors. In addition, Demeter, the commodity brokers,
the Trading
Advisors and all U.S. futures exchanges were subjected to
monitoring by the CFTC of their Year 2000 preparedness, and the
major foreign futures exchanges engaged in market-wide testing of
their Year 2000 compliance during 1999.
MSDW and Demeter consider the transition into the Year 2000
successful from the perspective of their internal systems and
global external interactions. Over the millennial changeover
period, no material issues were encountered, and MSDW, Demeter
and the Partnership conducted business as usual.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the euro). During a three-year
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Advisors from trading those
sovereign currencies and thereby limits their ability to take
advantage of potential market opportunities that might otherwise
have existed had separate currencies been available to trade.
This could adversely affect the performance results of the
Partnership.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership
are acquired for speculative trading purposes only and, as a
result, all or substantially all of the Partnership's assets are
at risk of trading loss. Unlike an operating company, the risk
of market-sensitive instruments is central, not incidental, to
the Partnership's main business activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of
ruin") that far exceed the Partnership's experiences to date or
any reasonable expectations based upon historical changes in
market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are
deemed to be forward-looking statements for purposes of the safe
harbor, except for statements of historical fact.
The Partnership accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and cash
flow. Profits and losses on open positions of exchange traded-
futures interests are settled daily through variation margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Advisors 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 Advisors in their daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
Partnership's open
positions as a percentage of total Net Assets by primary market
risk category at December 31, 1999 and 1998. At December 31,
1999 and 1998, the Partnership's total capitalization was
approximately $214 million and $200 million, respectively.
Primary Market December 31, 1999
December 31, 1998
Risk Category Value at Risk Value at
Risk
Interest Rate (.27)% (1.06)%
Currency (.37) (.51)
Equity (.48) (.37)
Commodity (.40)
(.91)
Aggregate Value at Risk (.85)%
(1.28)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
individual Market Categories listed above. Aggregate VaR will be
lower as it takes into account correlation among different
positions and categories.
The table above represents the VaR of the Partnership's open
positions at December 31, 1999 and 1998 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures interests,
the composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes
in open positions could positively or negatively materially
impact market risk as measured by VaR.
The table below supplements the year end VaR by presenting the
Partnership's high, low and average VaR, as a percentage of total
Net Assets for the four quarterly reporting periods from January
1, 1999 through December 31, 1999.
Primary Market Risk Category High Low
Average
Interest Rate (1.61)% (.27)% (.71)%
Currency (1.52) (.37)
(1.04)
Equity (.82) (.31)
(.54)
Commodity (1.48) (.40)
(.88)
Aggregate Value at Risk (2.83)% (.85)%
(1.80)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess
of VaR within a short period of time, given the effects of the
leverage employed and market volatility. The VaR tables above,
as well as the past performance of the Partnership, gives no
indication of such "risk of ruin". In addition, VaR risk measures
should be viewed in light of the methodology's limitations, which
include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
aggregate basis at December 31, 1999 and for the end of the four
quarterly reporting periods during calendar year 1999. Since VaR
is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage or monitor risk. There can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated above or
that such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial. The Partnership also
maintains a substantial portion (approximately 92%) of its
available assets in cash at DWR. A decline in short-term
interest rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership's market
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary
market risk exposures - constitute forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. The Partnership's
primary market risk exposures as well as the strategies used and
to be used by Demeter and the Trading Advisors for managing such
exposures are subject to numerous uncertainties, contingencies
and risks, any one of which could cause the actual results of the
Partnership's risk controls to differ materially from the
objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership at December 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The Partnership's exposure in the interest rate
market complex was spread across the U.S., European, Australian
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. The G-7 countries
consists of France, U.S., Britain, Germany, Japan, Italy and
Canada. However, the Partnership also takes futures positions in
the government debt of smaller nations - e.g. Australia. Demeter
anticipates that G-7 and Australian interest rates will remain
the primary interest rate exposure of the Partnership for the
foreseeable future. The changes in interest rates, which have
the most effect on the Partnership, are changes in long-term, as
opposed to short-term, rates. Most of the speculative futures
positions held by the Partnership are in medium-to long-term
instruments. Consequently, even a material change in short-term
rates would have little effect on the Partnership, were the
medium-to long-term rates to remain steady.
Equity. The primary equity exposure is to equity price risk in
the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based
indices. At December 31, 1999, the Partnership's primary
exposures were in the NASDAQ 100 (U.S.), Hang Seng (China) and
DAX (German) 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).
Currency. The primary market exposure in the Partnership is in
the currency sector. The Partnership's currency exposure is to
exchange rate fluctuations, primarily fluctuations which disrupt
the historical pricing relationships between different currencies
and currency pairs. Interest rate changes as well as political
and general economic conditions influence these fluctuations.
The Partnership trades in a large number of currencies, including
cross-rates - i.e., positions between two currencies other than
the U.S. dollar. For the fourth quarter of 1999, the
Partnership's major exposures were in the euro currency crosses
and outright U.S. dollar positions. (Outright positions consist
of the U.S. dollar vs. other currencies. These other currencies
include the major and minor currencies). Demeter does not
anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future. The currency
trading VaR figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the dollar-based Partnership in
expressing VaR in a functional currency other than dollars.
Commodity.
Metals. The Partnership's primary metals market exposure is to
fluctuations in the price of gold and silver. Although certain
Trading Advisors will, from time to time, trade base metals such
as copper, aluminum, zinc, nickel and lead, the principal market
exposures of the Partnership have consistently been in precious
metals, gold and silver. A reasonable amount of exposure was
evident in the gold market as the price of gold retreated during
the fourth quarter. Silver prices have remained volatile over
this period and the Trading Advisors from time to time, took
substantial positions as perceived market opportunities
developed. Demeter anticipates that gold and silver will remain
the primary metals market exposures for the Partnership.
Soft Commodities and Agriculturals. On December 31, 1999, the
Partnership had a reasonable amount of exposure in the markets
that comprise these sectors. Most of the exposure, however, was
in the soybeans, corn and cotton markets. Supply and demand
inequalities, severe weather disruption and market expectations
affect price movements in these markets.
Energy. On December 31, 1999, the Partnership's energy exposure
was shared by futures contracts in the oil and natural gas
markets. Price movements in these markets result from political
developments in the Middle East, weather patterns, and other
economic fundamentals. As oil prices have increased
approximately 100% this year, and, given that the agreement by
OPEC to cut
production is approaching expiration in March 2000, it is
possible that volatility will remain on the high end.
Significant profits and losses have been and are expected to
continue to be experienced in this market. Natural gas, also a
primary energy market exposure, exhibited more volatility than
the oil markets on an intra-day and daily basis and is expected
to continue in this choppy pattern.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of December 31, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros and Hong Kong dollars. The
Partnership controls the non-trading risk of these balances by
regularly converting these balances back into dollars upon
liquidation of the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisors, 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 Trading Advisors, each of
whose strategies focus on different market sectors and trading
approaches, and monitoring the performance of the Trading
Advisors daily. In addition,
the Trading Advisors establish 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 Advisors.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the
Partnership's Annual Report, which is filed as Exhibit 13.01
hereto.
Supplementary data specified by Item 302 of Regulation S-K
(selected quarterly financial data) is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no directors or executive officers of the Partnership.
The Partnership is managed by Demeter.
Directors and Officers of the General Partner
The directors and officers of Demeter are as follows:
Robert E. Murray, age 39, is Chairman of the Board, President and
a Director of Demeter. Mr. Murray is also Chairman of the Board,
President and a Director of DWFCM. Effective as of the close of
business on January 31, 2000, Mr. Murray replaced Mr. Hawley as
Chairman of the Board of Demeter and DWFCM. Mr. Murray is
currently a Senior Vice President of DWR's Managed Futures
Department. Mr. Murray began his career at DWR in 1984 and is
currently the Director of the Managed Futures Department. In this
capacity, Mr. Murray is responsible for overseeing all aspects of
the firm's Managed Futures Department. Mr. Murray currently
serves as Vice Chairman and a Director of the Managed Funds
Association, an industry association for investment professionals
in futures, hedge funds and other alternative investments. Mr.
Murray graduated from Geneseo State University in May 1983 with a
B.A. degree in Finance.
Mitchell M. Merin, age 46, is a Director of Demeter. Mr. Merin
is also a Director of DWFCM. Mr. Merin was appointed the Chief
Operating Officer of Individual Asset Management for MSDW in
December 1998 and the President and Chief Executive Officer of
Morgan Stanley Dean Witter Advisors in February 1998. He has
been an Executive Vice President of DWR since 1990, during which
time he has been director of DWR's Taxable Fixed Income and
Futures divisions, Managing Director in Corporate Finance and
Corporate Treasurer. Mr. Merin received his Bachelor's degree
from Trinity College in Connecticut and his M.B.A. degree in
finance and accounting from the Kellogg Graduate School of
Management of Northwestern University in 1977.
Joseph G. Siniscalchi, age 54, is a Director of Demeter. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President,
Director of General Accounting and served as a Senior Vice
President and Controller for DWR's Securities Division through
1997. He is currently Executive Vice President and Director of
the Operations Division of DWR. From February 1980 to July 1984,
Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers
Kuhn Loeb, Inc.
Edward C. Oelsner, III, age 57, is a Director of Demeter. Mr.
Oelsner is currently an Executive Vice President and head of the
Product Development Group at Morgan Stanley Dean Witter Advisors,
an affiliate of DWR. Mr. Oelsner
joined DWR in 1981 as a Managing Director in DWR's Investment
Banking Department specializing in coverage of regulated
industries and, subsequently, served as head of the DWR Retail
Products Group. Prior to joining DWR, Mr. Oelsner held positions
at The First Boston Corporation as a member of the Research and
Investment Banking Departments from 1967 to 1981. Mr. Oelsner
received his M.B.A. in Finance from the Columbia University
Graduate School of Business in 1966 and an A.B. in Politics from
Princeton University in 1964.
Lewis A. Raibley, III, age 37, is Vice President, Chief Financial
Officer and a Director of Demeter. Mr. Raibley is also a
Director of DWFCM. Mr. Raibley is currently Senior Vice
President and Controller in the Individual Asset Management Group
of MSDW. From July 1997 to May 1998, Mr. Raibley served as
Senior Vice President and Director in the Internal Reporting
Department of MSDW and prior to that, from 1992 to 1997, he
served as Senior Vice President and Director in the Financial
Reporting and Policy Division of Dean Witter Discover & Co. He
has been with MSDW and its affiliates since June 1986.
Richard A. Beech, age 48, is a Director of Demeter. Mr. Beech
has been associated with the futures industry for over 23 years.
He has been at DWR since August 1984, where he is presently
Senior Vice President and head of Branch Futures. Mr. Beech
began his career at the Chicago Mercantile Exchange, where he
became the Chief Agricultural Economist doing market
analysis, marketing and compliance. Prior to joining DWR, Mr.
Beech also had worked at two investment banking firms in
operations, research, managed futures and sales management.
Ray Harris, age 43, is a Director of Demeter. Mr. Harris is
currently Executive Vice President, Planning and Administration
for Morgan Stanley Dean Witter Asset Management and has worked at
DWR or its affiliates since July 1982, serving in both financial
and administrative capacities. From August 1994 to January 1999,
he worked in two separate DWR affiliates, Discover Financial
Services and Novus Financial Corp., culminating as Senior Vice
President. Mr. Harris received his B.A. degree from Boston
College and his M.B.A. in finance from the University of Chicago.
Mark J. Hawley, age 56, served as Chairman of the Board and a
Director of Demeter and DWFCM throughout 1999. Mr. Hawley joined
DWR in February 1989 as Senior Vice President and served as
Executive Vice President and Director of DWR's Product Management
for Individual Asset Management throughout 1999. In this
capacity, Mr. Hawley was responsible for directing the activities
of the firm's Managed Futures, Insurance, and Unit Investment
Trust Business. From 1978 to 1989, Mr. Hawley was a member of
the senior management team at Heinold Asset Management, Inc., a
commodity pool operator, and was responsible for a
variety of projects in public futures funds. From 1972 to 1978,
Mr. Hawley was a Vice President in charge of institutional block
trading for the Mid-West at Kuhn Loeb & Company. Mr. Hawley
resigned effective January 31, 2000.
All the foregoing directors have indefinite terms.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a
limited partnership, the business of the Partnership is managed
by Demeter which is responsible for the administration of the
business affairs of the Partnership but receives no compensation
for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - As of
December 31, 1999, there were no persons known to be beneficial
owners of more than 5 percent of the Units.
(b) Security Ownership of Management - At December 31, 1999,
Demeter owned 133,076.700 Units of General Partnership Interest
representing a 1.37 percent interest in the Partnership.
(c) Changes in Control - None
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to
Financial Statements", in the accompanying Annual Report to
Limited Partners for the year ended December 31, 1999, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K. In
its capacity as the Partnership's retail commodity broker, DWR
received commodity brokerage fees of $15,188,479 for the year
ended December 31, 1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and reports of independent
auditors, all appearing in the accompanying Annual Report to
Limited Partners for the year ended December 31, 1999 are
incorporated by reference to Exhibit 13.01 of this Form 10-K:
- - Report of Deloitte & Touche LLP, independent auditors, for the
years ended December 31, 1999, 1998 and 1997.
- - Statements of Financial Condition as of December 31, 1999 and
1998.
- - Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 1999, 1998 and
1997.
- - Notes to Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8, and 13, the Annual Report
to Limited Partners for the year ended December 31, 1999 is not
deemed to be filed with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with
this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Partnership during
the last quarter of the period covered by this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MORGAN STANLEY DEAN
WITTER SPECTRUM SELECT L.P.
(Registrant)
BY: Demeter Management
Corporation,
General Partner
March 30, 2000 BY: /s/ Robert E. Murray
Robert E. Murray, Director,
Chairman of the Board and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Demeter Management Corporation.
BY: /s/ Robert E. Murray _________ March 29, 2000
Robert E. Murray, Director,
Chairman of the Board and
President
/s/ Joseph G. Siniscalchi __________ March 29, 2000
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III __________ March 29, 2000
Edward C. Oelsner III, Director
/s/ Mitchell M. Merin _______ March 29, 2000
Mitchell M. Merin, Director
/s/ Richard A. Beech _______ March 29, 2000
Richard A. Beech, Director
/s/ Ray Harris ______ March 29, 2000
Ray Harris, Director
/s/ Lewis A. Raibley, III __________ March 29, 2000
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal Accounting
Officer
EXHIBIT INDEX
ITEM
3.01 Form of Amended and Restated Limited Partnership Agreement
of the Partnership, dated as of May 31, 1998, is
incorporated by reference to Exhibit A of the
Partnership's Prospectus, dated January 21, 1999, filed
with the Securities and Exchange Commission pursuant to
Rule 424(b)(3) under the Securities Act of 1933, as
amended, on January 26, 1999.
3.02 Certificate of Limited Partnership, dated March 21, 1991,
is incorporated by reference to Exhibit 3.02 of the
Partnership's Registration Statement on Form S-1 (File No.
33-39667) filed with the Securities and Exchange
Commission on March 27, 1991.
3.03 Amended Certificate of Limited Partnership, dated April
28, 1998, is incorporated by reference to Exhibit 3.03 of
the Partnership's Form 10-K (File No. 0-19511) for fiscal
year ended December 31, 1998.
10.01 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter Management
Corporation, and Rabar Market Research, Inc. is
incorporated by reference to Exhibit 10.01 of the
Partnership's Form 10-K (File No. 0-19511) for fiscal year
ended December 31, 1998.
10.02 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter Management
Corporation, and EMC Capital Management, Inc. is
incorporated by reference to Exhibit 10.02 of the
Partnership's Form 10-K (File No. 0-19511) for fiscal year
ended December 31, 1998.
10.03 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter Management
Corporation, and Sunrise Capital Management, Inc. is
incorporated by reference to Exhibit 10.03 of the
Partnership's Form 10-K (File No. 0-19511) for fiscal year
ended December 31, 1998.
10.04 Amended and Restated Customer Agreement, dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.04 of
the Partnership's Form 10-K (File No. 0-19511) for fiscal year
ended December 31, 1998.
10.05 Customer Agreement, dated as of December 1, 1997, among
the Partnership, Carr Futures, Inc., and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit
10.05 of the Partnership's Form 10-K (File No. 0-19511)
for fiscal year ended December 31, 1998.
10.06 International Foreign Exchange Master Agreement, dated as
of August 1, 1997, between the Partnership and Carr
Futures, Inc. is incorporated by reference to Exhibit
10.06 of the Partnership's Form 10-K (File No. 0-19511)
for fiscal year ended December 31, 1998.
10.07 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 January 21, 1999, filed with the Securities and
Exchange Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933, as amended, on January 26, 1999.
10.08 Escrow Agreement, dated September 30, 1994, among Dean
Witter Spectrum Strategic L.P., Dean Witter Spectrum
Global Balanced L.P., Dean Witter Spectrum Technical L.P.,
Demeter Management Corporation, Dean Witter Reynolds Inc.,
and Chemical Bank is incorporated by reference to Exhibit
10.08 of the Partnership's Form 10-K (File No. 0-19511)
for fiscal year ended December 31, 1998.
10.09 Amendment to the Escrow Agreement, dated May 11, 1998,
among the Partnership, Demeter Management Corporation,
Dean Witter Reynolds Inc., and Chemical Bank is
incorporated by reference to Exhibit 10.09 of the
Partnership's Form 10-K (File No. 0-19511) for fiscal year
ended December 31, 1998.
13.01 December 31, 1999 Annual Report to Limited Partners is
filed herewith.
Morgan Stanley Dean Witter
Spectrum Series
[GRAPHIC]
December 31, 1999
Annual Report
MORGAN STANLEY DEAN WITTER
Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
Morgan Stanley Dean Witter Spectrum Series
Annual Report
1999
Dear Limited Partner:
This marks the sixth annual report for Morgan Stanley Dean Witter Spectrum
Global Balanced, Spectrum Strategic and Spectrum Technical and the ninth an-
nual report for Morgan Stanley Dean Witter Spectrum Select. The Net Asset
Value per Unit for each of the four Morgan Stanley Dean Witter Spectrum Funds
as of December 31, 1999 were as follows:
Funds N.A.V. % change for year
----- ------ -----------------
Spectrum Global Balanced $16.12 0.7%
Spectrum Select $22.00 -7.6%
Spectrum Strategic $15.85 37.2%
Spectrum Technical $14.91 -7.5%
Since their inception in November 1994, Spectrum Global Balanced has increased
by 61.2% (a compound annualized return of 9.7%), Spectrum Strategic has in-
creased by 58.5% (a compound annualized return of 9.3%) and Spectrum Technical
has increased by 49.1% (a compound annualized return of 8.0%). Since its in-
ception in August 1991, Spectrum Select has increased by 120.0% (a compound
annualized return of 9.8%).
Overall, Spectrum Global Balanced produced small gains during 1999 primarily
from long positions in the global stock index futures component, particularly
long German stock index futures. Additional gains were recorded in the energy
markets from long positions in crude and gas oil futures as oil prices surged
higher on reports and adherence to OPEC production cuts. Both Spectrum Select
and Spectrum Technical recorded a net loss during 1999 with losses being expe-
rienced primarily in the global interest rate futures markets, particularly
from short-term price volatility in U.S. and European interest rate futures.
Gains recorded in the
energy markets help to mitigate losses for both Spectrum Select and Spectrum
Technical. Long futures positions in crude oil and its refined products proved
profitable as oil prices trended significantly higher largely attributed to
the news that both OPEC and non-OPEC countries had reached and adhered to an
agreement to cut total output. Spectrum Strategic, whose managers use funda-
mental analyses in an attempt to forecast future price moves, produced perfor-
mance results substantially different than the other Spectrum funds based on
three primary themes: energy prices would rise from their low levels of Janu-
ary; gold would substantially increase in value late in the third quarter; and
global stock indices would appreciate during the fourth quarter. Based on
these themes, the managers in Spectrum Strategic emphasized exposure to long
energy, gold and stock index futures positions appropriately throughout 1999.
Not all forecasts for Spectrum Strategic managers came to fruition last year.
For example, losses were generated in the Japanese yen and partially offset
gains produced in the market segments mentioned previously.
While we are disappointed that both Spectrum Select and Spectrum Technical had
a difficult year in 1999, we remind investors that managed futures funds such
as the Spectrum Series are designed to provide diversification and non-corre-
lation, that is, the ability to perform independently, of global equities and
bonds. Managed futures have historically performed independently of tradi-
tional investments, such as stocks and bonds. This is referred to as non-cor-
relation, or the potential for managed futures to perform when traditional
markets such as stocks and bonds may experience difficulty performing. Of
course, managed futures funds will not automatically be profitable during un-
favorable periods for these traditional investments and vice versa. The degree
of non-correlation of any given managed futures fund will vary, particularly
as a result of market conditions, and some funds will have significantly
lesser degrees of non-correlation (i.e., greater correlation) with stocks and
bonds than others. 1999 proved to be another strong year for equities, due in
large part to continued growth and stability in most major world economies ac-
companied by low inflation. This environment,
while strong for equities, provided few major sustained price trends in the
world's futures and currency markets, and as such, proved to be a difficult
trading environment for money managers in Spectrum Select and Spectrum Techni-
cal whose trading strategies rely on the existence of longer-term price trends
for trading opportunities. Nevertheless, we remain confident in the role that
managed futures investments play in the overall investment portfolio, and we
believe this confidence is well-founded based on the longer-term diversified
non-correlated returns of this alternative investment. Demeter Management Cor-
poration, as General Partner to the funds, has been and continues to be an ac-
tive investor with more than $18 million invested among the 24 managed futures
funds to which we act as General Partner.
Effective May 1, 1999, Spectrum Strategic added Allied Irish Capital Manage-
ment, Ltd. ("AICM") as a Trading Advisor, and allocated to AICM the assets
previously managed by Stonebrook Capital Management, Inc. ("Stonebrook"), ap-
proximately $6.8 million. AICM is paid the same management and incentive fees
as Stonebrook.
Should you have any questions concerning this report, please feel free to con-
tact Demeter Management Corporation at Two World Trade Center, 62nd Floor, New
York, N.Y. 10048 or your Morgan Stanley Dean Witter Financial Advisor.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is not a
guarantee of future results.
Sincerely,
/s/ Robert E. Murray
Robert E. Murray
Chairman
Demeter Management Corporation
General Partner
Morgan Stanley Dean Witter Spectrum Series
Independent Auditors' Report
To the Limited Partners and the General Partner of
Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
Morgan Stanley Dean Witter Spectrum Select L.P.
Morgan Stanley Dean Witter Spectrum Strategic L.P.
Morgan Stanley Dean Witter Spectrum Technical L.P.:
We have audited the accompanying statements of financial condition of Morgan
Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter
Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P. and
Morgan Stanley Dean Witter Spectrum Technical L.P., (collectively, the
"Partnerships"), as of December 31, 1999 and 1998 and the related statements
of operations, changes in partners' capital, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Partnerships' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Morgan Stanley Dean Witter Spectrum Global
Balanced L.P., Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley
Dean Witter Spectrum Strategic L.P. and Morgan Stanley Dean Witter Spectrum
Technical L.P. at December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
February 7, 2000
(March 3, 2000 as to Note 6)
New York, New York
Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
Statements of Financial Condition
December 31,
---------------------
1999 1998
---------- ----------
$ $
ASSETS
Equity in futures interests trading accounts:
Cash 56,904,921 43,020,361
Net unrealized gain on open contracts 810,114 1,967,187
---------- ----------
Total Trading Equity 57,715,035 44,987,548
Subscriptions receivable 847,954 1,163,097
Interest receivable (DWR) 244,599 167,141
---------- ----------
Total Assets 58,807,588 46,317,786
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 667,741 118,190
Accrued brokerage fees (DWR) 216,895 169,841
Accrued management fee 58,940 46,153
Incentive fee payable -- 69,730
---------- ----------
Total Liabilities 943,576 403,914
---------- ----------
PARTNERS' CAPITAL
Limited Partners (3,549,239.387 and 2,836,946.985 Units,
respectively) 57,209,838 45,399,750
General Partner (40,584.304 and 32,126.520 Units,
respectively) 654,174 514,122
---------- ----------
Total Partners' Capital 57,864,012 45,913,872
---------- ----------
Total Liabilities and
Partners' Capital 58,807,588 46,317,786
========== ==========
NET ASSET VALUE PER UNIT 16.12 16.00
========== ==========
Statements of Operations
For the Years Ended
December 31,
-------------------------------
1999 1998 1997
---------- --------- ---------
$ $ $
REVENUES
Trading profit (loss):
Realized 2,425,585 5,113,920 3,683,460
Net change in unrealized (1,157,073) 1,285,628 464,966
---------- --------- ---------
Total Trading Results 1,268,512 6,399,548 4,148,426
Interest income (DWR) 2,385,751 1,642,542 1,145,033
---------- --------- ---------
Total Revenues 3,654,263 8,042,090 5,293,459
---------- --------- ---------
EXPENSES
Brokerage fees (DWR) 2,387,515 1,591,467 1,124,531
Management fee 648,787 422,960 269,162
Incentive fees 215,651 449,775 300,250
---------- --------- ---------
Total Expenses 3,251,953 2,464,202 1,693,943
---------- --------- ---------
NET INCOME 402,310 5,577,888 3,599,516
========== ========= =========
Net Income Allocation:
Limited Partners 397,258 5,518,127 3,561,537
General Partner 5,052 59,761 37,979
Net Income per Unit:
Limited Partners .12 2.25 2.12
General Partner .12 2.25 2.12
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Select L.P.
Statements of Financial Condition
December 31,
-----------------------
1999 1998
----------- -----------
$ $
ASSETS
Equity in futures interests trading accounts:
Cash 207,251,012 187,619,419
Net unrealized gain on open contracts 6,887,064 8,435,054
Net option premiums 776,380 --
----------- -----------
Total Trading Equity 214,914,456 196,054,473
Subscriptions receivable 3,730,051 6,021,707
Interest receivable (DWR) 722,305 591,858
----------- -----------
Total Assets 219,366,812 202,668,038
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 3,764,242 939,381
Accrued brokerage fees (DWR) 1,270,975 1,164,344
Accrued management fees 525,921 481,797
----------- -----------
Total Liabilities 5,561,138 2,585,522
----------- -----------
PARTNERS' CAPITAL
Limited Partners (9,583,810.732 and 8,274,690.051
Units, respectively) 210,877,519 196,915,644
General Partner (133,076.700 Units) 2,928,155 3,166,872
----------- -----------
Total Partners' Capital 213,805,674 200,082,516
----------- -----------
Total Liabilities and Partners' Capital 219,366,812 202,668,038
=========== ===========
NET ASSET VALUE PER UNIT 22.00 23.80
=========== ===========
Statements of Operations
For the Years Ended December 31,
-----------------------------------
1999 1998 1997
----------- ---------- ----------
$ $ $
REVENUES
Trading profit (loss):
Realized (1,351,849) 36,087,729 15,940,851
Net change in unrealized (1,547,990) (1,192,107) 3,149,167
----------- ---------- ----------
Total Trading Results (2,899,839) 34,895,622 19,090,018
Interest income (DWR) 7,678,789 6,883,110 7,405,511
----------- ---------- ----------
Total Revenues 4,778,950 41,778,732 26,495,529
----------- ---------- ----------
EXPENSES
Brokerage fees (DWR) 15,188,479 11,360,166 9,777,851
Management fees 6,284,885 5,202,158 5,239,533
Incentive fees -- 1,832,021 49,989
Transaction fees and costs -- 625,327 1,370,439
Administrative expenses -- 64,000 114,000
----------- ---------- ----------
Total Expenses 21,473,364 19,083,672 16,551,812
----------- ---------- ----------
NET INCOME (LOSS) (16,694,414) 22,695,060 9,943,717
=========== ========== ==========
Net Income (Loss) Allocation:
Limited Partners (16,455,697) 22,302,202 9,781,168
General Partner (238,717) 392,858 162,549
Net Income (Loss) per Unit (Note 1):
Limited Partners (1.80) 2.95 1.22
General Partner (1.80) 2.95 1.22
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Strategic L.P.
Statements of Financial Condition
December 31,
-----------------------
1999 1998
----------- ----------
$ $
ASSETS
Equity in futures interests trading accounts:
Cash 97,808,328 63,919,054
Net unrealized gain on open contracts 9,563,813 5,299,335
Net option premiums (11,653) 225,646
----------- ----------
Total Trading Equity 107,360,488 69,444,035
Subscriptions receivable 1,743,958 1,796,051
Interest receivable (DWR) 339,582 205,247
----------- ----------
Total Assets 109,444,028 71,445,333
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 847,860 398,976
Accrued brokerage fees (DWR) 590,001 405,606
Accrued management fees 313,646 218,976
----------- ----------
Total Liabilities 1,751,507 1,023,558
----------- ----------
PARTNERS' CAPITAL
Limited Partners (6,723,390.378 and 6,031,262.407
Units, respectively) 106,542,362 69,671,636
General Partner (72,581.141 and 64,937.294 Units,
respectively) 1,150,159 750,139
----------- ----------
Total Partners' Capital 107,692,521 70,421,775
----------- ----------
Total Liabilities and
Partners' Capital 109,444,028 71,445,333
=========== ==========
NET ASSET VALUE PER UNIT 15.85 11.55
=========== ==========
Statements of Operations
For the Years Ended
December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
$ $ $
REVENUES
Trading profit:
Realized 32,274,037 7,945,575 1,297,824
Net change in unrealized 4,264,478 2,771,722 2,387,258
---------- ---------- ----------
Total Trading Results 36,538,515 10,717,297 3,685,082
Interest income (DWR) 3,017,103 2,379,478 2,304,248
---------- ---------- ----------
Total Revenues 39,555,618 13,096,775 5,989,330
---------- ---------- ----------
EXPENSES
Brokerage fees (DWR) 5,837,887 4,402,540 4,414,327
Management fees 3,137,509 2,342,447 2,212,788
Incentive fees 2,451,152 1,336,693 427,094
---------- ---------- ----------
Total Expenses 11,426,548 8,081,680 7,054,209
---------- ---------- ----------
NET INCOME (LOSS) 28,129,070 5,015,095 (1,064,879)
========== ========== ==========
Net Income (Loss) Allocation:
Limited Partners 27,829,050 4,958,188 (1,054,657)
General Partner 300,020 56,907 (10,222)
Net Income (Loss) per Unit:
Limited Partners 4.30 .84 .04
General Partner 4.30 .84 .04
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Technical L.P.
Statements of Financial Condition
December 31,
------------------------
1999 1998
----------- -----------
$ $
ASSETS
Equity in futures interests trading accounts:
Cash 251,443,755 235,044,325
Net unrealized gain on open contracts 18,036,296 18,909,268
Net option premiums (74,725) --
----------- -----------
Total Trading Equity 269,405,326 253,953,593
Subscriptions receivable 3,926,914 4,002,633
Interest receivable (DWR) 900,955 717,685
----------- -----------
Total Assets 274,233,195 258,673,911
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 3,057,593 1,339,311
Accrued brokerage fees (DWR) 1,559,481 1,439,151
Accrued management fees 860,403 794,015
----------- -----------
Total Liabilities 5,477,477 3,572,477
----------- -----------
PARTNERS' CAPITAL
Limited Partners (17,836,873.576 and 15,660,041.764
Units, respectively) 265,907,998 252,455,045
General Partner (191,022.517 and
164,158.204 Units, respectively) 2,847,720 2,646,389
----------- -----------
Total Partners' Capital 268,755,718 255,101,434
----------- -----------
Total Liabilities and Partners' Capital 274,233,195 258,673,911
=========== ===========
NET ASSET VALUE PER UNIT 14.91 16.12
=========== ===========
Statements of Operations
For the Years Ended
December 31,
----------------------------------
1999 1998 1997
----------- ---------- ----------
$ $ $
REVENUES
Trading profit (loss):
Realized 726,179 35,224,194 13,777,460
Net change in unrealized (872,972) 6,612,556 9,762,823
----------- ---------- ----------
Total Trading Results (146,793) 41,836,750 23,540,283
Interest income (DWR) 9,593,178 8,103,423 5,987,304
----------- ---------- ----------
Total Revenues 9,446,385 49,940,173 29,527,587
----------- ---------- ----------
EXPENSES
Brokerage fees (DWR) 19,176,380 15,543,787 11,617,770
Management fees 10,580,071 8,403,764 5,832,758
Incentive fees 430,097 3,191,252 369,975
----------- ---------- ----------
Total Expenses 30,186,548 27,138,803 17,820,503
----------- ---------- ----------
NET INCOME (LOSS) (20,740,163) 22,801,370 11,707,084
=========== ========== ==========
Net Income (Loss) Allocation:
Limited Partners (20,531,494) 22,571,217 11,589,197
General Partner (208,669) 230,153 117,887
Net Income (Loss) per Unit:
Limited Partners (1.21) 1.49 1.02
General Partner (1.21) 1.49 1.02
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Series
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1999, 1998 and 1997
Units of
Partnership Limited General
Interest Partners Partner Total
------------- ----------- --------- -----------
$ $ $
Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
Partners' Capital,
December 31, 1996 1,609,108.931 18,499,873 206,382 18,706,255
Offering of Units 505,325.179 6,507,261 20,000 6,527,261
Net income -- 3,561,537 37,979 3,599,516
Redemptions (246,149.269) (3,149,796) -- (3,149,796)
------------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 1,868,284.841 25,418,875 264,361 25,683,236
Offering of Units 1,205,176.553 17,447,965 190,000 17,637,965
Net income -- 5,518,127 59,761 5,577,888
Redemptions (204,387.889) (2,985,217) -- (2,985,217)
------------- ----------- --------- -----------
Partners' Capital,
December 31, 1998 2,869,073.505 45,399,750 514,122 45,913,872
Offering of Units 1,019,759.235 16,184,278 135,000 16,319,278
Net income -- 397,258 5,052 402,310
Redemptions (299,009.049) (4,771,448) -- (4,771,448)
------------- ----------- --------- -----------
Partners' Capital,
December 31, 1999 3,589,823.691 57,209,838 654,174 57,864,012
============= =========== ========= ===========
Units of
Partnership Limited General
Interest Partners Partner Total
------------- ----------- --------- -----------
(Note 1) $ $ $
Morgan Stanley Dean Witter Spectrum Select L.P.
Partners' Capital,
December 31, 1996 8,346,327.700 161,174,820 2,611,465 163,786,285
Offering of Units 573,746.700 12,056,614 -- 12,056,614
Net income -- 9,781,168 162,549 9,943,717
Redemptions (919,522.800) (19,013,295) -- (19,013,295)
------------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 8,000,551.600 163,999,307 2,774,014 166,773,321
Offering of Units 1,310,353.729 30,297,590 -- 30,297,590
Net income -- 22,302,202 392,858 22,695,060
Redemptions (903,138.578) (19,683,455) -- (19,683,455)
------------- ----------- --------- -----------
Partners' Capital,
December 31, 1998 8,407,766.751 196,915,644 3,166,872 200,082,516
Offering of Units 2,238,093.744 51,589,367 -- 51,589,367
Net loss -- (16,455,697) (238,717) (16,694,414)
Redemptions (928,973.063) (21,171,795) -- (21,171,795)
------------- ----------- --------- -----------
Partners' Capital,
December 31, 1999 9,716,887.432 210,877,519 2,928,155 213,805,674
============= =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Series
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1999, 1998 and 1997
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
Morgan Stanley Dean Witter Spectrum Strategic L.P.
Partners' Capital,
December 31, 1996 4,229,101.851 44,645,423 473,454 45,118,877
Offering of Units 1,956,789.313 22,377,135 150,000 22,527,135
Net loss -- (1,054,657) (10,222) (1,064,879)
Redemptions (668,003.709) (7,485,552) -- (7,485,552)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 5,517,887.455 58,482,349 613,232 59,095,581
Offering of Units 1,610,245.841 16,662,471 80,000 16,742,471
Net income -- 4,958,188 56,907 5,015,095
Redemptions (1,031,933.595) (10,431,372) -- (10,431,372)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 1998 6,096,199.701 69,671,636 750,139 70,421,775
Offering of Units 1,300,877.987 16,846,544 100,000 16,946,544
Net income -- 27,829,050 300,020 28,129,070
Redemptions (601,106.169) (7,804,868) -- (7,804,868)
-------------- ----------- --------- -----------
Partners' Capital, Decem-
ber 31, 1999 6,795,971.519 106,542,362 1,150,159 107,692,521
============== =========== ========= ===========
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
Morgan Stanley Dean Witter Spectrum Technical L.P.
Partners' Capital,
December 31, 1996 8,300,169.234 111,852,280 1,133,349 112,985,629
Offering of Units 5,034,287.188 69,082,458 600,000 69,682,458
Net income -- 11,589,197 117,887 11,707,084
Redemptions (899,755.684) (12,424,664) -- (12,424,664)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 12,434,700.738 180,099,271 1,851,236 181,950,507
Offering of Units 4,731,996.876 69,886,681 565,000 70,451,681
Net income -- 22,571,217 230,153 22,801,370
Redemptions (1,342,497.646) (20,102,124) -- (20,102,124)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 1998 15,824,199.968 252,455,045 2,646,389 255,101,434
Offering of Units 3,976,153.731 61,073,132 410,000 61,483,132
Net loss -- (20,531,494) (208,669) (20,740,163)
Redemptions (1,772,457.606) (27,088,685) -- (27,088,685)
-------------- ----------- --------- -----------
Partners' Capital, Decem-
ber 31, 1999 18,027,896.093 265,907,998 2,847,720 268,755,718
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Global
Balanced L.P.
Statements of Cash Flows
For the Years Ended
December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 402,310 5,577,888 3,599,516
Noncash item included
in net income:
Net change in unrealized 1,157,073 (1,285,628) (464,966)
(Increase) decrease in operating assets:
Interest receivable (DWR) (77,458) (48,192) (33,466)
Net option premiums -- (458,150) 458,150
Increase (decrease) in operating liabilities:
Accrued brokerage
fees (DWR) 47,054 70,079 7,615
Accrued management
fee 12,787 20,703 4,507
Incentive fee payable (69,730) 69,730 --
---------- ---------- ----------
Net cash provided by
operating activities 1,472,036 3,946,430 3,571,356
---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of Units 16,319,278 17,637,965 6,527,261
(Increase) decrease in subscriptions
receivable 315,143 (537,387) (434,141)
Increase (decrease) in redemptions
payable 549,551 3,614 (686,849)
Redemptions of Units (4,771,448) (2,985,217) (3,149,796)
---------- ---------- ----------
Net cash provided by financing activities 12,412,524 14,118,975 2,256,475
---------- ---------- ----------
Net increase in cash 13,884,560 18,065,405 5,827,831
Balance at beginning of
period 43,020,361 24,954,956 19,127,125
---------- ---------- ----------
Balance at end of period 56,904,921 43,020,361 24,954,956
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Select L.P.
Statements of Cash Flows
For the Years Ended
December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (16,694,414) 22,695,060 9,943,717
Noncash item included
in net income (loss):
Net change in unrealized 1,547,990 1,192,107 (3,149,167)
(Increase) decrease in
operating assets:
Net option premiums (776,380) -- 18,205
Interest receivable (DWR) (130,447) 46,346 (105,144)
Due from DWR -- 1,097,517 (688,191)
Increase (decrease) in
operating liabilities:
Accrued brokerage
fees (DWR) 106,631 1,164,344 (491,315)
Accrued management
fees 44,124 58,124 19,815
Accrued administrative expenses -- (72,499) (50,844)
Incentive fees payable -- -- (348,459)
Accrued transaction fees and costs -- -- (64,595)
----------- ----------- -----------
Net cash provided by (used for)
operating activities (15,902,496) 26,180,999 5,084,022
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of Units 51,589,367 30,297,590 12,056,614
(Increase) decrease in subscriptions
receivable 2,291,656 (6,021,707) 5,365,420
Increase (decrease) in
redemptions payable 2,824,861 (1,332,933) (97,843)
Redemptions of Units (21,171,795) (19,683,455) (19,013,295)
----------- ----------- -----------
Net cash provided by (used
for) financing activities 35,534,089 3,259,495 (1,689,104)
----------- ----------- -----------
Net increase in cash 19,631,593 29,440,494 3,394,918
Balance at beginning of
period 187,619,419 158,178,925 154,784,007
----------- ----------- -----------
Balance at end of period 207,251,012 187,619,419 158,178,925
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Strategic L.P.
Statements of Cash Flows
For the Years Ended
December 31,
-----------------------------------
1999 1998 1997
---------- ----------- ----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 28,129,070 5,015,095 (1,064,879)
Noncash item included in net income
(loss):
Net change in unrealized (4,264,478) (2,771,722) (2,387,258)
(Increase) decrease in operating assets:
Net option premiums 237,299 96,477 (367,448)
Interest receivable (DWR) (134,335) 17,798 (59,402)
Increase in operating liabilities:
Accrued brokerage fees (DWR) 184,395 45,565 36,599
Accrued management
fees 94,670 30,719 31,436
---------- ----------- ----------
Net cash provided by (used
for) operating activities 24,246,621 2,433,932 (3,810,952)
---------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of Units 16,946,544 16,742,471 22,527,135
(Increase) decrease in subscriptions
receivable 52,093 (962,792) (168)
Increase (decrease) in redemptions
payable 448,884 (967,188) (124,372)
Redemptions of Units (7,804,868) (10,431,372) (7,485,552)
---------- ----------- ----------
Net cash provided by
financing activities 9,642,653 4,381,119 14,917,043
---------- ----------- ----------
Net increase in cash 33,889,274 6,815,051 11,106,091
Balance at beginning of period 63,919,054 57,104,003 45,997,912
---------- ----------- ----------
Balance at end of period 97,808,328 63,919,054 57,104,003
========== =========== ==========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Technical L.P.
Statements of Cash Flows
For the Years Ended
December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (20,740,163) 22,801,370 11,707,084
Noncash item included
in net income (loss):
Net change in unrealized 872,972 (6,612,556) (9,762,823)
(Increase) decrease in operating
assets:
Net option premiums 74,725 -- 328,955
Interest receivable (DWR) (183,270) (60,123) (275,721)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (DWR) 120,330 341,957 320,941
Accrued management fees 66,388 220,319 197,331
Incentive fees payable -- (139,190) 139,190
----------- ----------- -----------
Net cash provided by (used for)
operating activities (19,789,018) 16,551,777 2,654,957
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of Units 61,483,132 70,451,681 69,682,458
(Increase) decrease in subscriptions receivable 75,719 (1,037,012) 2,151,502
Increase in redemptions payable 1,718,282 330,081 325,421
Redemptions of Units (27,088,685) (20,102,124) (12,424,664)
----------- ----------- -----------
Net cash provided by financing
activities 36,188,448 49,642,626 59,734,717
----------- ----------- -----------
Net increase in cash 16,399,430 66,194,403 62,389,674
Balance at beginning of period 235,044,325 168,849,922 106,460,248
----------- ----------- -----------
Balance at end of period 251,443,755 235,044,325 168,849,922
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Organization--Morgan Stanley Dean Witter Spectrum Global Balanced L.P. (for-
merly known as Dean Witter Spectrum Global Balanced L.P.) ("Spectrum Global
Balanced"), Morgan Stanley Dean Witter Spectrum Select L.P. (formerly known as
Dean Witter Spectrum Select L.P.) ("Spectrum Select"), Morgan Stanley Dean
Witter Spectrum Strategic L.P. (formerly known as Dean Witter Spectrum Strate-
gic L.P.) ("Spectrum Strategic") and Morgan Stanley Dean Witter Spectrum Tech-
nical L.P. (formerly known as Dean Witter Spectrum Technical L.P.) ("Spectrum
Technical"), (individually, a "Partnership," or collectively, the "Partner-
ships"), are limited partnerships organized to engage in the speculative trad-
ing of futures and forward contracts, options on futures contracts, physical
commodities and other commodity interests, including, but not limited to for-
eign currencies, financial instruments, metals, energy and agricultural prod-
ucts (collectively, "futures interests").
The general partner for each Partnership 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. Both Demeter and DWR are
wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW").
Spectrum Select became one of the Spectrum Series of funds effective June 1,
1998. Each outstanding unit of limited partnership interest ("Unit(s)") in
Dean Witter Select Futures Fund L.P. was converted into 100 Units of Spectrum
Select. The number of Units outstanding, net income or loss per Unit and Net
Asset Value per Unit have been adjusted for all reporting periods to reflect
this conversion.
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean Wit-
ter, Discover & Co. ("DWD"). At that time, DWD changed its corporate name to
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"). Effective February 19,
1998, MSDWD changed its corporate name to Morgan Stanley Dean Witter & Co.
Demeter is required to maintain a 1% minimum interest in the equity of each
Partnership and income (losses) are shared by Demeter and the Limited Partners
based upon their proportional ownership interests.
Use of Estimates--The financial statements are prepared in accordance with
generally accepted accounting principles, which require management to make es-
timates and assumptions that affect the reported amounts in the
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
financial statements and related disclosures. Management believes that the es-
timates utilized in the preparation of the financial statements are prudent
and reasonable. Actual results could differ from those estimates.
Revenue Recognition--Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change
in unrealized gains and losses is reflected in the change in unrealized profit
(loss) on open contracts from one period to the next in the statements of
operations. Monthly, DWR pays each Partnership interest income based upon 80%
of its average daily "Net Assets" (as defined in the limited partnership
agreements) for the month in the case of Spectrum Select, Spectrum Strategic
and Spectrum Technical, and 100% in the case of Spectrum Global Balanced. The
interest rate is equal to a prevailing rate on U.S. Treasury bills. For
purposes of such interest payments, Net Assets do not include monies due the
Partnership on futures interests, but not actually received.
Net Income (Loss) per Unit--Net income (loss) per Unit is computed using the
weighted average number of Units outstanding during the period.
Equity in Futures Interests Trading Accounts--The Partnerships' asset "Equity
in futures interests trading accounts," reflected in the statements of
financial condition consists of (A) cash on deposit with DWR and Carr to be
used as margin for trading; (B) net unrealized gains or losses on open
contracts, which are valued at market and calculated as the difference between
original contract value and market value, and (C) net option premiums, which
represent the net of all monies paid and/or received for such option premiums.
The Partnerships, in their normal course of business, enter into various
contracts with Carr acting as their commodity broker. Pursuant to brokerage
agreements with Carr, to the extent that such trading results in unrealized
gains or losses, these amounts are offset and reported on a net basis on the
Partnerships' statements of financial condition.
The Partnerships have offset the fair value amounts recognized for forward
contracts executed with the same counterparty as allowable under terms of the
master netting agreements with Carr, the sole counterparty on such contracts.
The Partnerships have consistently applied their right to offset.
Brokerage and Related Transaction Fees and Costs-- Prior to July 31, 1997,
brokerage fees for Spectrum Global Balanced were accrued at a monthly rate of
11/24 of 1% of Net Assets (a 5.5% annual rate) as of the first day of each
month. From August 1, 1997 to May 31, 1998, brokerage fees were accrued at
49/120 of 1% of Net Assets (a 4.9% annual rate) as of the first day of each
month.
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
Effective June 1, 1998, brokerage fees were reduced to 1/12 of 4.60% of Net
Assets (a 4.60% annual rate) as of the first day of each month.
Prior to June 1, 1998, brokerage commissions for Spectrum Select were accrued
on a half-turn basis at 80% of DWR's published non-member rates and
transaction fees and costs were accrued on a half-turn basis. Brokerage
commissions and transaction fees and costs combined were capped at 13/20 of 1%
per month (a 7.8% maximum annual rate) of Spectrum Select's month-end Net
Assets. Effective June 1, 1998 brokerage fees for Spectrum Select were reduced
to a monthly rate of 1/12 of 7.25% (a 7.25% annual rate) of Net Assets as of
the first day of each month.
Prior to July 31, 1997, brokerage fees for Spectrum Strategic and Spectrum
Technical were accrued at a monthly rate of 33/48 of 1% of Net Assets (an
8.25% annual rate) as of the first day of each month. From August 1, 1997 to
May 31, 1998, brokerage fees were accrued at 51/80 of 1% of the Net Assets (a
7.65% annual rate) as of the first day of each month. Effective June 1, 1998,
brokerage fees for Spectrum Strategic and Spectrum Technical were reduced to
1/12 of 7.25% (a 7.25% annual rate) of Net Assets as of the first day of each
month.
Such brokerage fees currently cover all brokerage commissions, transaction
fees and costs and ordinary administrative and continuing offering expenses.
Operating Expenses--The Partnerships incur monthly management fees and may
incur incentive fees. All common administrative and continuing offering
expenses including legal, auditing, accounting, filing fees and other related
expenses are borne by DWR through the brokerage fees paid by the Partnerships
(effective June 1, 1998 for Spectrum Select with its change to a flat rate
brokerage fee).
Prior to June 1, 1998, Spectrum Select was charged all operating expenses
related to its trading activities to a maximum of 1/4 of 1% annually of
Spectrum Select's average month end Net Assets. Demeter was responsible for
operating expenses in excess of the cap.
Income Taxes--No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of each Partnership's
revenues and expenses for income tax purposes.
Distributions--Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date.
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
Continuing Offering--Units of each Partnership are offered at a price equal to
100% of the Net Asset Value per Unit as of the close of business on the last
day of the month. No selling commissions or charges related to the continuing
offering of Units will be paid by the Limited Partners or the Partnership. DWR
will pay all such costs.
Redemptions--Limited Partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the end of the last day of any month that
is at least six months after the closing at which a person becomes a Limited
Partner, upon five business days advance notice by redemption form to Demeter.
Thereafter, Units redeemed on or prior to the last day of the twelfth month
after such Units were purchased will be subject to a redemption charge equal
to 2% of the Net Asset Value of a Unit on the date of such redemption. Units
redeemed after the last day of the twelfth month and on or prior to the last
day of the twenty-fourth month after which such Units were purchased will be
subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on
the date of such redemption. Units redeemed after the last day of the twenty-
fourth month after which such Units were purchased will not be subject to a
redemption charge. The foregoing redemption charges will be paid to DWR. Re-
demptions must be made in whole Units, in a minimum amount of 50 Units, unless
a Limited Partner is redeeming his entire interest in a Partnership.
Exchanges--On the last day of the first month which occurs more than six
months after a person first becomes a Limited Partner in any of the Partner-
ships, and the end of each month thereafter, Limited Partners may exchange
their investment among the Partnerships (subject to certain restrictions out-
lined in the Limited Partnership Agreement) without paying additional charges.
Dissolution of the Partnership--Spectrum Global Balanced, Spectrum Strategic
and Spectrum Technical will terminate on December 31, 2035 and Spectrum Select
will terminate on December 31, 2025 regardless of financial condition at such
time, or at an earlier date if certain conditions occur as defined in each
Partnership's Limited Partnership Agreement.
2. Related Party Transactions
Each Partnership pays brokerage fees to DWR as described in Note 1. Each Part-
nership's cash is on deposit with DWR and Carr in futures interests trading
accounts to meet margin requirements as needed. DWR pays interest on these
funds as described in Note 1.
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
3. Trading Advisors
Demeter, on behalf of each Partnership, retains certain commodity trading
advisors to make all trading decisions for the Partnerships. The trading
advisors for each Partnership are as follows:
Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
RXR, Inc.
Morgan Stanley Dean Witter Spectrum Select L.P.
EMC Capital Management, Inc.
Rabar Market Research, Inc.
Sunrise Capital Management, Inc.
Morgan Stanley Dean Witter Spectrum Strategic L.P.
Blenheim Investments, Inc. ("Blenheim")
Allied Irish Capital Management, Ltd. ("AICM")
Willowbridge Associates Inc. ("Willowbridge")
Effective April 30, 1998, A. Gary Shilling & Co., Inc. ("Shilling") was ter-
minated as an advisor to the Partnership. The assets of the Partnership pre-
viously allocated to Shilling were allocated to Stonebrook Capital Manage-
ment Inc., ("Stonebrook"), effective June 1, 1998.
Effective March 4, 1999, Stonebrook was terminated as an advisor to the
Partnership. The assets of the Partnership previously allocated to
Stonebrook were allocated to AICM, effective June 1, 1999.
Morgan Stanley Dean Witter Spectrum Technical L.P.
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc. ("JWH")
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
Management Fee--The management fee is accrued at the rate of 5/48 of 1% per
month of Net Assets on the first day of each month (a 1.25% annual rate) for
Spectrum Global Balanced.
The management fee is accrued at the rate of 1/4 of 1% per month of Net Assets
allocated to each trading advisor on the first day of each month (a 3% annual
rate) for Spectrum Select. Prior to June 1, 1998, the management fee was
accrued at the rate of 1/4 of 1% of the Partnership's adjusted Net Assets, as
defined in its limited partnership agreements, as of the last day of each
month (a 3% annual rate).
The management fee is accrued at the rate of 1/12 of 4% per month of Net
Assets allocated to each of Blenheim
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
and Willowbridge on the first day of each month, and 1/12 of 3% per month of
Net Assets allocated to AICM on the first day of each month for Spectrum Stra-
tegic (annual rates of 4% and 3%, respectively). Prior to June 1, 1998, the
management fee was accrued at the rate of 1/3 of 1% of Net Assets allocated to
each trading advisor on the first day of each month (a 4% annual rate).
The management fee is accrued at the rate of 1/3 of 1% per month of Net Assets
allocated to each trading advisor on the first day of each month (a 4% annual
rate) for Spectrum Technical.
Incentive Fee--Spectrum Global Balanced, Spectrum Select and Spectrum Strate-
gic each pay a monthly incentive fee equal to 15% of the trading profits expe-
rienced with respect to each trading advisor's allocated Net Assets as of the
end of each calendar month. Trading profits represent the amount by which
profits from futures, forwards and options trading exceed losses after broker-
age and management fees are deducted. Prior to June 1, 1998, trading profits
for Spectrum Select represented the amount by which profits from futures, for-
wards and options trading exceed losses, after brokerage commissions, manage-
ment fees, administrative expenses and transaction fees and costs were paid.
Prior to June 1, 1998, Spectrum Select paid a quarterly incentive fee to each
trading advisor equal to 17.5% of the trading profits.
Spectrum Technical pays a monthly incentive fee equal to 15% of the trading
profits experienced with respect to the Net Assets allocated to Campbell and
JWH and 19% of the Trading profits experienced with respect to the Net Assets
allocated to Chesapeake as of the end of each calendar month. Trading profits
represent the amount by which profits from futures, forwards and options trad-
ing exceed losses after brokerage and management fees are deducted. Prior to
June 1, 1998, Spectrum Technical paid an incentive fee equal to 15% of trading
profits to all trading advisors.
For all Partnerships when trading losses are incurred, no incentive fee will
be paid in subsequent months until all such losses are recovered. Cumulative
trading losses are adjusted on a pro-rata basis for the net amount of each
months subscriptions and redemptions.
4. Financial Instruments
The Partnerships trade futures and forward contracts and options on futures
contracts and on physical commodities, in interest rates, stock indicies, com-
modities, currencies, precious and industrial metals and energy 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 to
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
perform under the terms of the contracts. There are numerous factors which may
significantly influence the market value of these contracts, including inter-
est rate volatility.
In June 1998, the Financial Accounting Standards Board ("FASB") issued State-
ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriv-
ative Instruments and Hedging Activities" effective for fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of SFAS No. 133," which defers the required implementation of SFAS No.
133 until fiscal years beginning after June 15, 2000. However, the Partnership
had previously elected to adopt the provisions of SFAS No. 133 beginning with
the fiscal year ended December 31, 1998. SFAS No. 133 superscedes SFAS No. 119
and No. 105, which required the disclosure of average aggregate fair values
and contract/notional values, respectively, of derivative financial instru-
ments for an entity which carries its assets at fair value. The application of
SFAS No. 133 does not have a significant effect on the Partnerships' financial
statements.
The net unrealized gains on open contracts are reported as a component of "Eq-
uity in futures interests trading accounts" on the statements of financial
condition and totaled at December 31, 1999 and 1998, respectively, $810,114
and $1,967,187 for Spectrum Global Balanced, $6,887,064 and $8,435,054 for
Spectrum Select, $9,563,813 and $5,299,335 for Spectrum Strategic, and
$18,036,296 and $18,909,268 for Spectrum Technical.
For Spectrum Global Balanced, of the $810,114 net unrealized gain on open con-
tracts at December 31, 1999, $669,640 related to exchange-traded futures con-
tracts and $140,474 related to off-exchange-traded forward currency contracts.
Of the $1,967,187 net unrealized gain on open contracts at December 31, 1998,
$2,044,752 related to exchange-traded futures contracts and $(77,565) related
to off-exchange-traded forward currency contracts.
For Spectrum Select, of the $6,887,064 net unrealized gain on open contracts
at December 31, 1999, $6,935,040 related to exchange-traded futures and
futures-styled options contracts and $(47,976) related to off-exchange-traded
forward currency contracts. Of the $8,435,054 net unrealized gain on open con-
tracts at December 31, 1998, $8,982,276 related to exchange-traded futures
contracts and $(547,222) related to off-exchange-traded forward currency con-
tracts.
For Spectrum Strategic, the $9,563,813 net unrealized gain on open contracts
at December 31, 1999 and the $5,299,335 net unrealized gain on open contracts
at December 31, 1998 all related to exchange-traded futures and futures-styled
options contracts.
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
For Spectrum Technical, of the $18,036,296 net unrealized gain on open
contracts at December 31, 1999, $17,006,044 related to exchange-traded futures
and future-styled options contracts and $1,030,252 related to off-exchange-
traded forward currency contracts. Of the $18,909,268 net unrealized gain on
open contracts at December 31, 1998, $19,606,697 related to exchange-traded
futures contracts and $(697,429) related to off-exchange-traded forward
currency contracts.
Exchange-traded contracts and off-exchange-traded forward currency contracts
held by the Partnerships at December 1999 and 1998 mature as follows:
1999 1998
------------- -------------
Spectrum Global Balanced
Exchange-Traded Contracts June 2000 March 1999
Off-Exchange-Traded Forward Currency Contracts March 2000 March 1999
Spectrum Select
Exchange-Traded Contracts December 2000 December 1999
Off-Exchange-Traded Forward Currency Contracts March 2000 March 1999
Spectrum Strategic
Exchange-Traded Contracts December 2001 March 2000
Spectrum Technical
Exchange-Traded Contracts December 2000 December 1999
Off-Exchange-Traded Forward Currency Contracts March 2000 March 1999
The Partnerships have credit risk associated with counterparty nonperformance.
The credit risk associated with the instruments in which the Partnerships are
involved is limited to the amounts reflected in the Partnerships' statements
of financial condition.
The Partnerships also have credit risk because DWR and Carr act as the futures
commission merchants or the counterparties, with respect to most of the Part-
nerships' assets. Exchange-traded futures and futures-styled options contracts
are marked to market on a daily basis, with variations in value settled on a
daily basis. Each of DWR and Carr, as a futures commission merchant for each
Partnership's exchange-traded futures and futures-styled options contracts,
are required, pursuant to regulations of the Commodity Futures Trading Commis-
sion to segregate from their own assets, and for the sole benefit of their
commodity customers, all funds held by them with respect to exchange-traded
futures and futures-styled options contracts, including an amount equal to the
net unrealized gain on all open futures and futures-styled options contracts,
which funds, in the aggregate, totaled at December 31, 1999 and 1998 respec-
tively, $57,574,561 and $45,065,113 for Spectrum Global Balanced, $214,186,052
and $196,601,695 for Spectrum Se-
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Continued)
lect, $107,372,141 and $69,218,389 for Spectrum Strategic and $268,449,799 and
$254,651,022 for Spectrum Technical. With respect to the Partnerships' off-ex-
change-traded forward currency contracts, there are no daily settlements of
variations in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated. With respect to
those off-exchange-traded forward currency contracts, the Partnerships are at
risk to the ability of Carr, the sole counterparty on all of such contracts,
to perform. Each Partnership has a netting agreement with Carr. These agree-
ments, which seek to reduce both the Partnerships' and Carr's exposure on off-
exchange-traded forward currency contracts, should materially decrease the
Partnerships' credit risk in the event of Carr's bankruptcy or insolvency.
Carr's parent, Credit Agricole Indosuez, has guaranteed to the Partnerships
payment of the net liquidating value of the transactions in the Partnerships'
accounts with Carr (including foreign currency contracts).
5. Legal Matters
The class actions first filed in 1996 in California and in New York State
courts were each dismissed in 1999. On September 6, 10, and 20, 1996, and on
March 13, 1997, purported class actions were filed in the Superior Court of
the State of California, County of Los Angeles, on behalf of all purchasers of
interests in limited partnership commodity pools sold by DWR. Named defendants
include DWR, Demeter, Dean Witter Futures & Currency Management Inc., MSDW,
Spectrum Select (under its original name, "Dean Witter Select Futures Fund
L.P.") and certain other limited partnership commodity pools of which Demeter
is the general partner (all such parties referred to hereafter as the "Morgan
Stanley Dean Witter Parties") and certain trading advisors to those pools. On
June 16, 1997, the plaintiffs in the above actions filed a consolidated
amended complaint, alleging, among other things, that the defendants committed
fraud, deceit, negligent misrepresentation, various violations of the Califor-
nia Corporations Code, intentional and negligent breach of fiduciary duty,
fraudulent and unfair business practices, unjust enrichment, and conversion in
the sale and operation of the various limited partnership commodity pools. The
complaints seek unspecified amounts of compensatory and punitive damages and
other relief. The court entered an order denying class certification on August
24, 1999. On September 24, 1999, the court entered an order dismissing the
case without prejudice on consent. Similar purported class actions were also
filed on September 18 and 20, 1996, in the Supreme Court of the State of New
York, New York County, and on November 14, 1996 in the Superior Court of the
State of Delaware, New Castle County, against the
Morgan Stanley Dean Witter Spectrum Series
Notes to Financial Statements--(Concluded)
Morgan Stanley Dean Witter Parties and certain trading advisors on behalf of
all purchasers of interests in various limited partnership commodity pools,
including Spectrum Select, sold by DWR. A consolidated and amended complaint
in the action pending in the Supreme Court of the State of New York was filed
on August 13, 1997, alleging that the defendants committed fraud, breach of
fiduciary duty, and negligent misrepresentation in the sale and operation of
the various limited partnership commodity pools. The complaints seek unspeci-
fied amounts of compensatory and punitive damages and other relief. The New
York Supreme Court dismissed the New York action in November 1998, but granted
plaintiffs leave to file an amended complaint, which they did in early Decem-
ber 1998. The defendants filed a motion to dismiss the amended complaint with
prejudice on February 1, 1999. By decision dated December 21, 1999, the New
York Supreme Court dismissed the case with prejudice.
In addition, on December 16, 1997, upon motion of the plaintiffs, the action
pending in the Superior Court of the State of Delaware was voluntarily
dismissed without prejudice.
6. Subsequent Event
On March 3, 2000, the plaintiffs in the New York action referred to in Note 5
filed an appeal of the order dismissing the consolidated complaint.
MORGAN STANLEY DEAN WITTER & CO.
Two World Trade Center
62nd Floor
New York, NY 10048
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