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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, 1998 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 0-26340
DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
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(Exact name of registrant as specified in its Limited Partnership Agreement)
DELAWARE 13-3782232
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(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
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(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
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(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: $45,362,782.29 at January 31,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . 1
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Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . 1-3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . 4-6
Item 4. Submission of Matters to a Vote of Security Holders . 6
Part II.
Item 5. Market for the Registrant's Partnership Units
and Related Security Holder Matters . . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . 9-18
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . 18-31
Item 8. Financial Statements and Supplementary Data. . . . . 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . 31
Part III.
Item 10. Directors and Executive Officers of the Registrant . 32-36
Item 11. Executive Compensation . . . . . . . . . . . . . . . 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . 37
Item 13. Certain Relationships and Related Transactions . . 37
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . 38
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
Annual Report to Dean Witter Spectrum
Series Limited Partners for the year
ended December 31, 1998 II, III and IV
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PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Spectrum Global Balanced
L.P. (formerly, Dean Witter Spectrum Balanced L.P.) (the "Partnership") is a
Delaware limited partnership organized to engage in the speculative trading of
futures contracts, forward contracts, physical commodities and other commodities
interests, including foreign currencies, financial instruments, precious and
industrial metals, energy products and agriculturals (collectively "futures
interests"). The Partnership is one of the Dean Witter Spectrum Series of funds,
comprised of the Partnership, Dean Witter Spectrum Strategic L.P., Dean Witter
Spectrum Technical L.P. and Dean Witter Spectrum Select L.P. (Dean Witter
Spectrum Select L.P., formerly "Dean Witter Select Futures Fund L.P." became one
of the Dean Witter Spectrum Series of Funds May 31, 1998.) 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"). RXR, Inc. (the "Trading Advisor"), is the Trading Advisor to the
Partnership.
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Units of limited partnership interest ("Units") are offered at monthly
closings at a price equal to 100% of the Net Asset Value per Unit as of the
close of business on the last day of each month. The Partnership's Net Asset
Value per Unit as of December 31, 1998 was $16.00, representing an increase of
16.36 percent from the Net Asset Value per Unit of $13.75 on December 31, 1997.
For a more detailed description of the Partnership's business, see subparagraph
(c).
(b) Financial Information about Industry Segments. For financial
information reporting purposes, the Partnership is deemed to engage in one
industry segment, the speculative trading of futures interests. The relevant
financial information is presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the business
of speculative trading of futures interests, pursuant to trading instructions
provided by the Trading Advisor. For a detailed description of the different
facets of the Partnership's business, see those portions of the Partnership's
prospectus, dated January 21, 1999, (the "Prospectus"), 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).
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2. Futures, Options and 2. "The Futures, Options
Forward Markets and Forward Markets"
(Pages 83-87 of the
Prospectus).
3. Partnership's Trading 3. "Investment Programs,
Arrangements and Use of Proceeds and
Policies Trading Policies" (Pages
20-25 of the
Prospectus).
"The Trading Advisors"
(Pages 49-79 of the
Prospectus).
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),
"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.
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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
On September 6, 10, and 20, 1996, and on March 13, 1997, similar 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 (all such parties
referred to hereafter as the "Dean Witter Parties"), certain other limited
partnership commodity pools of which Demeter is the general partner, 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. 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
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on November 14, 1996 in the Superior Court of the State of Delaware, New Castle
County, against the Dean Witter Parties and certain trading advisors on behalf
of all purchasers of interests in various limited partnership commodity pools
sold by DWR. A consolidated and amended complaint in the action pending in the
Supreme Court of the State of New York was filed on August 13, 1997, alleging
that the defendants committed fraud, breach of fiduciary duty, and negligent
misrepresentation in the sale and operation of the various limited partnership
commodity pools. 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. 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 have filed a motion to dismiss
the amended complaint with prejudice on February 1, 1999. The complaints seek
unspecified amounts of compensatory and punitive damages and other relief. It is
possible that additional similar actions may be filed and that, in the course of
these actions, other parties could be added as defendants. The Dean Witter
Parties believe that they have strong defenses to, and they will vigorously
contest, the actions. Although the ultimate outcome of legal proceedings cannot
be predicted with certainty, it is the opinion of management of the Dean Witter
Parties that the resolution of the actions
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will not have a material adverse effect on the financial condition or the
results of operations of any of the Dean Witter Parties.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS
There is no established public trading market for Units of the
Partnership. The number of holders of Units at December 31, 1998 was
approximately 5,359. No distributions have been made by the Partnership since it
commenced trading operations on November 2, 1994. Demeter has sole discretion to
decide what distributions, if any, shall be made to investors in the
Partnership. No determination has yet been made as to future distributions.
Units are being sold at monthly closings as of the last day of each month
at a price equal to 100% of the Net Asset Value of a Unit as of the date of such
monthly closing.
Through December 31, 1998, 3,568,863.050 Units have been sold, leaving
4,431,136.950 Units unsold as of December 31, 1998. The aggregate price of the
Units sold through December 31, 1998 is $46,870,948.
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.
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Item 6. SELECTED FINANCIAL DATA (in dollars)
For the
Period from
November 2, 1994
(commencement of
For the Years Ended December 31, operations) to
1998 1997 1996 1995 December 31, 1994
--------------------------------------------------------- -------------------
Total Revenues
(including interest) 8,042,090 5,293,459 893,626 2,329,813 (17,216)
Net Income (Loss) 5,577,888 3,599,516 (357,966) 1,559,664 (52,306)
Net Income (Loss)
Per Unit (Limited
& General Partners) 2.25 2.12 (.44) 2.24 (.17)
Total Assets 46,317,786 25,923,024 19,620,770 14,923,682 3,817,871
Total Limited
Partners' Capital 45,399,750 25,418,875 18,499,873 14,604,689 3,701,277
Net Asset Value Per
Unit of Limited
Partnership Interest 16.00 13.75 11.63 12.07 9.83
-9 -
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate futures interest
trading accounts. Such assets are held in either non-interest bearing bank
accounts or in securities approved by the Commodity Futures Trading Commission
("CFTC") for investment of customer funds. The Partnership's assets held by DWR
and Carr may be used as margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in futures interests, it is expected that
the Partnership will continue to own such liquid assets for margin purposes.
The Partnership's investment in futures interests may, from time to time,
be illiquid. Most United States futures exchanges limit fluctuations in certain
futures interest prices during a single day by regulations referred to as "daily
price fluctuations limits" or "daily limits". Pursuant to such regulations,
during a single trading day no trades may be executed at prices beyond the daily
limit. If the price for a particular futures interest has increased or decreased
by an amount equal to the daily limit, positions in such futures interest can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Futures interests prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating
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its futures interests and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward contracts
on foreign currency. The markets for some world currencies have low trading
volume and are illiquid, which may prevent the Partnership from trading in
potentially profitable markets or from promptly liquidating unfavorable
positions, subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it expect to
have, any capital assets. Future redemptions, exchanges and sales of additional
Units will affect the amount of funds available for investment in futures
interests in subsequent periods. Since they are at the discretion of Limited
Partners, it is not possible to estimate the amount and therefore, the impact of
future redemptions, exchanges or sales of additional Units.
Results of Operations. As of December 31, 1998, the Partnership's total
capital was $45,913,872, an increase of $20,230,636 from the Partnership's total
capital of $25,683,236 at December 31, 1997. For the year ended December 31,
1998, the Partnership generated net income of $5,577,888, total subscriptions
aggregated $17,637,965 and total redemptions aggregated $2,985,217.
For the year ended December 31, 1998, the Partnership's total
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trading revenues, including interest income, were $8,042,090. The Partnership's
total expenses for the year were $2,464,202, resulting in net income of
$5,577,888. The value of an individual unit in the Partnership increased from
$13.75 at December 31, 1997 to $16.00 at December 31, 1998.
As of December 31, 1997, the Partnership's total capital was $25,683,236,
an increase of $6,976,981 from the Partnership's total capital of $18,706,255,
at December 31, 1996. For the year ended December 31, 1997, the Partnership
generated net income of $3,599,516, total subscriptions aggregated $6,527,261
and total redemptions aggregated $3,149,796.
For the year ended December 31, 1997, the Partnership's total trading
revenues including interest income were $5,293,459. The Partnership's total
expenses for the year were $1,693,943, resulting in net income of $3,599,516.
The value of an individual unit in the Partnership increased from $11.63 at
December 31, 1996 to $13.75 at December 31, 1997.
As of December 31, 1996, the Partnership's total capital was $18,706,255,
an increase of $3,951,755 from the Partnership's total capital of $14,754,500 at
December 31, 1995. For the year ended December 31, 1996, the Partnership
incurred a net loss of $357,966, total subscriptions aggregated $7,259,621 and
redemptions aggregated $2,949,900.
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For the year ended December 31, 1996, the Partnership's total trading
revenues including interest income were $893,626. The Partnership's total
expenses for the year were $1,251,592, resulting in a net loss of $357,966. The
value of an individual unit in the Partnership decreased from $12.07 at December
31, 1995 to $11.63 at December 31, 1996.
The Partnership's overall performance record represents varied results of
trading in different futures interests markets. For a further description of
1998 trading results, refer to the letter to the Limited Partners in the
accompanying Annual Report to Limited Partners for the year ended December 31,
1998, incorporated by reference in this Form 10-K. The Partnership's gains and
losses are allocated among its partners for income tax purposes.
Credit Risk. In entering into futures and forward contracts there is a
credit risk to the Partnership that the counterparty on the contract will not be
able to meet its obligations to the Partnership. The ultimate counterparty of
the Partnership for futures contracts traded in the United States and most
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
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one of its member's customers, and, as such, should significantly reduce this
credit risk. For example, a clearinghouse may cover a default by (i) 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 (ii) assessing its
members.
In cases where the Partnership trades on a foreign exchange where the
clearinghouse is not funded or guaranteed by the membership or where the
exchange is a "principals' market" in which performance is the responsibility of
the exchange member and not the exchange or a clearinghouse, or when the
Partnership enters into off-exchange contracts with a counterparty, the sole
recourse of the Partnership will be the clearinghouse, the exchange member or
the off-exchange contract counterparty, as the case may be. There can be no
assurance that a clearinghouse, exchange or other exchange member will meet its
obligations to the Partnership, and the Partnership is not indemnified against a
default by such parties from Demeter, MSDW or DWR.
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,
clearinghouse or other exchange member default on trades effected for the
broker's customers. Any such obligation on the part of
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the broker appears even less clear where the default occurs in a non-US
jurisdiction.
Demeter deals with the credit risks of all partnerships for which it
serves as general partner 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. Demeter is then 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 certain 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, such Partnership's exposure has typically
amounted to only a small percentage
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of its total net assets. On those relatively few occasions where the
Partnership's credit exposure may climb above that level, Demeter deals with the
situation on a case by case basis, carefully weighing whether the increased
level of credit exposure remains appropriate.
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 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,
1998, incorporated by reference in this Form 10-K.
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Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the smooth functioning
of computer systems. Many computer systems in use today cannot recognize the
computer code for the year 2000, but revert to 1900 or some other date. This is
commonly known as the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with whom it has a
material relationship do not properly process and calculate date-related
information and data concerning dates on or after January 1, 2000. Such a
failure could adversely affect the handling or determination of futures trades
and prices and other services.
MSDW began its planning for the Year 2000 Problem in 1995, and currently
has several hundred employees working on the matter. It has developed its own
Year 2000 compliance plan to deal with the problem and had the plan approved by
the company's executive management, Board of Directors and Information
Technology Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that affect the
Partnership. This includes hardware and software upgrades, systems consulting
and computer maintenance.
Beyond the challenge facing internal computer systems, the systems failure
of any of the third parties with whom the Partnership has a material
relationship - the futures exchanges and clearing organizations
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through which it trades, Carr, or the Trading Advisor - could result in a
material financial risk to the Partnership. All U.S. futures exchanges are
subject to monitoring by the CFTC of their Year 2000 preparedness and the major
foreign futures exchanges are also expected to be subject to market-wide testing
of their Year 2000 compliance during 1999. Demeter intends to monitor the
progress of Carr and the Trading Advisor throughout 1999 in their Year 2000
compliance and, where applicable, to test its external interface with Carr and
the Trading Advisor.
A worst case scenario would be one in which trading of contracts on behalf
of the Partnership becomes impossible as a result of the Year 2000 problem
encountered by any third parties. A less catastrophic but more likely scenario
would be one in which trading opportunities diminish as a result of technical
problems resulting in illiquidity and fewer opportunities to make profitable
trades. MSDW has begun develop-ing various "contingency plans" in the event that
the systems of such third parties fail. Demeter intends to consult closely with
MSDW in implementing those plans. Despite the best efforts of both Demeter and
MSDW, however, it is possible that these steps will not be sufficient to avoid
any adverse impact to the Partnership.
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Risks Associated With the Euro. On January 1, 1999, eleven countries in
the European Union established fixed conversion rates on their existing
sovereign currencies and converted to a common single currency (the "euro").
During a three-year transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion to the euro
prevents the Trading Advisor from trading in certain currencies and thereby
limits its ability to take advantage of potential market opportunities that
might otherwise have existed had separate currencies been available to trade.
This could adversely affect the performance results of the Partnership.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool engaged primarily in the speculative trading
of futures interests. The market sensitive instruments held by the Partnership
are acquired solely for speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's primary business activities.
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The futures interests traded by the Partnership involve varying degrees of
related market risk. Such market risk is often dependent upon changes in the
level or volatility of interest rates, exchange rates, and/or market values of
financial instruments and commodities. Fluctuations in related market risk based
upon the aforementioned factors result in frequent changes in the fair value of
the Partnership's open positions, and, consequently, in its earnings and cash
flow.
The Partnership's total market risk is influenced by a wide variety of factors,
including the diversification effects among the Partnership's existing open
positions, the volatility present within the market(s), and the liquidity of the
market(s). At varying times, each of these factors may act to exacerbate or mute
the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative of its future
results. Any attempt at quantifying the Partnership's market risk must be
qualified by the inherent uncertainty of its speculative trading, which may
cause future losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable expectation premised upon
historical changes in the fair value of its market sensitive instruments.
- 20 -
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 on the basis of mark-to-market
accounting principles. As such, any loss in the fair value of the Partnership's
open positions is directly reflected in the Partnership's earnings, whether
realized or unrealized, and the Partnership's cash flow, as profits and losses
on open positions of exchange-traded futures interests are settled daily through
variation margin. The Partnership's risk exposure in the various market sectors
traded by the Trading Advisor is estimated below in terms of Value at Risk
("VaR"). The VaR model employed by the Partnership incorporates numerous
variables that could impact the fair value of the Partnership's trading
- 21 -
portfolio. The Partnership estimates VaR using a model based on historical
simulation with a confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in trading portfolio
value. The VaR model generally takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the VaR model include
equity and commodity prices, interest rates, foreign exchange rates, as well as
correlation that exists among these variables. The hypothetical changes in
portfolio value are based on daily observed percentage changes in key market
indices or other market factors ("market risk factors") to which the portfolio
is sensitive. In the case of the Partnership's VaR, the historical observation
period is approximately four years. The Partnership's one-day 99% VaR
corresponds to the negative change in portfolio value that, based on observed
market risk factor moves, would have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as trading
portfolios become more diverse and modeling techniques and systems capabilities
improve. It must also be noted that the VaR model is used to quantify market
risk for historic reporting purposes only and is not utilized by either Demeter
or the Trading Advisor in their daily risk management activities.
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The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the Partnership's open
positions, as a percentage of total net assets, by market category as of
December 31, 1998. As of December 31, 1998, the Partnership's total
capitalization was approximately $ 46 million.
Primary Market December 31, 1998
Risk Category Value at Risk
Interest Rate (.58)%
Currency (.26)
Equity (1.74)
Commodity (.29)
Aggregate Value at Risk (1.70)%
Aggregate value at risk represents the aggregate VaR of the Partnership's open
positions and not the sum of the VaR of the individual categories listed above.
Aggregate VaR will be lower as it takes into account correlation among different
positions and categories.
The table above represents the VaR of the Partnership's open positions at
December 31, 1998 only and is not necessarily representative of either the
historic or future risk of an investment in the Partnership. As the
Partnership's sole business is the speculative trading of primarily
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futures interests, the composition of its portfolio of open positions can change
significantly over any given time period or even within a single trading day.
Such changes in open positions could materially impact market risk as measured
by VaR either positively or negatively.
The table below supplements the 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, 1998 through December 31, 1998.
Primary Market Risk Category High Low Average
Interest Rate (1.36)% (.29)% (.87)%
Currency (.67) (.18) (.39)
Equity (1.74) (.59) (1.11)
Commodity (.29) (.19) (.23)
Aggregate Value at Risk (1.70)% (1.42)% (1.57)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is
typically many times the applicable margin requirements, as such margin
requirements generally range between 2% and 15% of contract face value.
Additionally, due to the use of leverage, the face value of the market sector
instruments held by the Partnership is typically many times the total
capitalization of the Partnership. The financial magnitude of
- 24 -
the Partnership's open positions thus creates a "risk of ruin" not typically
found in other investment vehicles. Due to the relative size of the positions
held, certain market conditions may cause the Partnership to incur losses
greatly in excess of VaR within a short period of time. The foregoing VaR
tables, as well as the past performance of the Partnership, gives no indication
of such "risk of ruin". In addition, VaR risk measures should be interpreted in
light of the methodology's limitations, which include the following: past
changes in market risk factors will not always yield accurate predictions of the
distributions and correlations of future market movements; changes in portfolio
value in response to market movements may differ from the responses implicit in
a VaR model; published VaR results reflect past trading positions while future
risk depends on future positions; VaR using a one-day time horizon does not
fully capture the market risk of positions that cannot be liquidated or hedged
within one day; and the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that could be incurred
under certain unusual market movements.
The foregoing VaR tables present the results of the Partnership's VaR for
each of the Partnership's market risk exposures and on an aggregate basis at
December 31, 1998 and for the end of quarter periods during calendar 1998. Since
VaR is based on historical data, VaR should not be viewed as
- 25 -
predictive of the Partnership's future financial performance or its ability to
manage and monitor risk and there can be no assurance that the Partnership's
actual losses on a particular day will not exceed the VaR amounts indicated
below or that such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances
not needed for margin. However, such balances, as well as any market risk they
may represent, are immaterial. The Partnership also maintains a substantial
portion (approximately 89%) of its available assets in cash at DWR. A decline in
short-term interest rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered material.
Materiality, as used throughout this section, is based on an assessment of
reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage, optionality and multiplier features
of the Partnership's market sensitive instruments.
- 26 -
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market
risk exposures - except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership manages its
primary market risk exposures - constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Advisor for managing
such exposures are subject to numerous uncertainties, contingencies and risks,
any one of which could cause the actual results of the Partnership's risk
controls to differ materially from the objectives of such strategies. Government
interventions, defaults and 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.
- 27 -
The following were the primary trading risk exposures of the Partnership
as of December 31, 1998, by market sector. It may be anticipated however, that
these market exposures will vary materially over time.
Interest Rate. Interest rate risk is the principal market exposure of the
Partnership. Interest rate movements directly affect the price of the sovereign
bond futures positions held by the Partnership and indirectly 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
to interest rate fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions in the government debt of
smaller nations - e.g. Australia. Demeter anticipates that G-7 interest rates
will remain the primary market 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 future 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.
- 28 -
Currency. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two currencies other
than the U.S. dollar. However, the Partnership's major exposures have typically
been in the dollar/yen, dollar/mark and dollar/pound positions. Demeter does not
anticipate that the risk profile of the Partnership's currency sector will
change significantly in the future, although it is difficult at this point to
predict the effect of the introduction of the Euro on the Trading Advisor's
currency trading strategies.
Equity. The Partnership's primary equity exposure is to equity price
risk in the G-7 countries. The stock index futures traded by the Partnership are
by law limited to futures on broadly based indices. As of December 31, 1998, the
Partnership's primary exposures were in the S&P 500, Financial Times (England),
Nikkei (Japan) and DAX (Germany) stock indices. Demeter anticipates little, if
any, trading in non-G-7 stock indices. The Partnership is primarily exposed to
the risk of adverse price trends or static markets in the major U.S., European
and Japanese indices. (Static markets would not cause major market changes but
would
- 29 -
make it difficult for the Partnership to avoid being "whipsawed" into numerous
small losses).
Commodity.
Metals. The Partnership's primary metals market exposure is to
fluctuations in the price of gold and silver. Although the Trading Advisor will
from time to time trade base metals such as aluminum, copper, nickel and zinc,
the principal market exposures of the Partnership have consistently been in the
precious metals, gold and silver. The Trading Advisor's gold trading has been
increasingly limited due to the long-lasting and mainly non-volatile decline in
the price of gold over the last 10-15 years. However, silver prices have
remained volatile over this period, and the Trading Advisor has from time to
time taken substantial positions as they have perceived market opportunities to
develop. Demeter anticipates that gold and silver will remain the primary metals
market exposure for the Partnership.
Soft Commodities. One of the Partnership's commodities market exposure is
to fluctuations in the price of soft commodities, which are often directly
affected by severe or unexpected weather conditions. Soybean oil, grains, and
cotton accounted for the substantial bulk of the Partnership's commodities
exposure at December 31, 1998. The Partnership has had market exposure to live
cattle and lean hogs. However, Demeter anticipates that the Trading Advisor will
maintain an emphasis on soybean
- 30 -
oil, grains, and cotton, in which the Partnership has historically taken it's
largest positions.
Energy. The Partnership's primary energy market exposure is to gas
and oil price movements, often resulting from political developments in the
Middle East. Although the Trading Advisor trades natural gas to a limited
extent, oil is by far the dominant energy market exposure of the Partnership.
Oil prices are currently depressed, but they can be volatile and substantial
profits and losses have been and are expected to continue to be experienced in
this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the Partnership at
December 31, 1998:
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, German marks, British pounds, French francs and
euros. The Partnership controls the non-trading risk of these balances by
regularly converting these balances back into U.S. dollars at varying intervals,
depending upon such factors as size, volatility, etc.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor, severally,
attempt to manage the risk of the Partnership's open positions are
- 31 -
essentially the same in all market categories traded. Demeter attempts to manage
the Partnership's market exposure by (i) diversifying the Partnership's assets
among different market sectors and trading approaches, and (ii), monitoring the
performance of the Trading Advisor on a daily basis. In addition, the Trading
Advisor establishes diversification guidelines, often set in terms of the
maximum margin to be committed to positions in any one market sector or market
sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-trading
instruments, cash, which is the only Partnership investment directed by Demeter,
rather than the Trading Advisor.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the Annual Report to
Limited Partners for the year ended December 31, 1998 and is incorporated by
reference in this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 32 -
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:
Mark J. Hawley, age 55, is Chairman of the Board and a Director of
Demeter. Mr. Hawley is also Chairman of the Board and a Director of DWFCM. Mr.
Hawley previously served as President of Demeter throughout 1998. Mr. Hawley
joined DWR in February 1989 as Senior Vice President and is currently the
Executive Vice President and Director of DWR's Product Management for Individual
Asset Management. In this capacity, Mr. Hawley is 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 CPO, 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.
- 33 -
Joseph G. Siniscalchi, age 53, 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 56, is a Director of Demeter. Mr. Oelsner is
currently an Executive Vice President and head of the Product Development Group
at Dean Witter InterCapital Inc., 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.
Robert E. Murray, age 38, is President and a Director of Demeter. Mr.
Murray is also President and a Director of DWFCM. Effective as of the close of
business on December 31, 1998, Mr. Murray replaced Mr. Hawley as President of
Demeter. Mr. Murray is also a Senior Vice President of DWR's Managed Futures
Department and is the Senior
- 34 -
Administrative Officer of DWFCM. 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 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.
Lewis A. Raibley, III, age 36, is Vice President, Chief Financial Officer
and a Director of Demeter. Effective as of the close of business on December 31,
1998, Mr. Raibley was elected to Demeter's Board of Directors. 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.
Mitchell M. Merin, age 45, became a Director of Demeter on March 17, 1999.
Mr. Merin was appointed the Chief Operating Officer of 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
- 35 -
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.
Richard A. Beech, age 47, became a Director of Demeter on March 17, 1999.
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 42, became a Director of Demeter on March 17, 1999. Mr.
Harris is currently Senior 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
- 36 -
President. Mr. Harris received his B.A. degree from Boston College and his
M.B.A. in finance from the University of Chicago.
Richard M. DeMartini, age 46, previously served as the Chairman of the
Board and as a Director of Demeter throughout 1998. Effective as of the close of
business on December 31, 1998, Mr. DeMartini resigned as the Chairman of the
Board and as a Director of Demeter due to changes in his responsibilities within
MSDW.
Lawrence Volpe, age 51, served as a Director to Demeter throughout 1998.
Effective as of the close of business on December 31, 1998, Mr. Volpe resigned
as a Director of Demeter.
Patti L. Behnke, age 38, served as Vice President and Chief Financial
Officer of Demeter through May 1998. Effective June 1, 1998, Ms. Behnke resigned
as Vice President and Chief Financial Officer of Demeter in order to take on new
responsibilities as Operations Officer - Controllers Division for MSDW, and was
replaced by Mr. Raibley.
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.
- 37 -
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - As of December 31,
1998, 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, 1998, Demeter owned
32,126.520 Units of General Partnership Interest representing a 1.12 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, 1998, incorporated by reference in this Form 10-K. In its
capacity as the Partnership's retail commodity broker, DWR received commodity
brokerage commissions (paid and accrued by the Partnership) of $1,591,467 for
the year ended December 31, 1998.
- 38 -
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 report of independent auditors, all
appearing in the accompanying Annual Report to Limited Partners for the year
ended December 31, 1998, are incorporated by reference in this Form 10-K:
- Report of Deloitte & Touche LLP, independent auditors, for the years
ended December 31, 1998, 1997 and 1996.
- Statements of Financial Condition as of December 31, 1998 and 1997.
- Statements of Operations, Changes in Partners' Capital, and Cash
Flows for the years ended December 31, 1998, 1997 and 1996.
- 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, 1998 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.
- 39 -
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.
DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
(Registrant)
By: Demeter Management Corporation,
General Partner
March 25, 1999 BY: /s/ Robert E. Murray
-----------------------------------
Robert E. Murray, Director 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 25, 1999
----------------------------------------
Robert E. Murray, Director and
President
/s/ Mark J. Hawley March 25, 1999
----------------------------------------
Mark J. Hawley, Director
and Chairman of the Board
/s/ Joseph G. Siniscalchi March 25, 1999
-----------------------------------------
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 25, 1999
------------------------------------------
Edward C. Oelsner III, Director
/s/ Mitchell M. Merin March 25, 1999
------------------------------------------
Mitchell M. Merin, Director
/s/ Richard A. Beech March 25, 1999
------------------------------------------
Richard A. Beech, Director
/s/ Ray Harris March 25, 1999
------------------------------------------
Ray Harris, Director
/s/ Lewis A. Raibley, III March 25, 1999
------------------------------------------
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal
Accounting Officer
- 40 -
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.
DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
(Registrant)
BY: Demeter Management Corporation,
General Partner
March 25, 1999 BY:
----------------------------------
Robert E. Murray, Director 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: March 25, 1999
----------------------------------------
Robert E. Murray, Director and
President
---------------------------------------- March 25, 1999
Mark J. Hawley, Director
and Chairman of the Board
----------------------------------------- March 25, 1999
Joseph G. Siniscalchi, Director
------------------------------------------ March 25, 1999
Edward C. Oelsner III, Director
------------------------------------------ March 25, 1999
Mitchell M. Merin, Director
----------------------------------------- March 25, 1999
Richard A. Beech, Director
----------------------------------------- March 25, 1999
Ray Harris, Director
----------------------------------------- March 25, 1999
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal
Accounting Officer
- 40 -
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 April 18, 1994, is
incorporated by reference to Exhibit 3.02 of the Partnership's
Registration Statement on Form S-1 (File No. 33-80146) filed with the
Securities and Exchange Commission on June 10, 1994.
3.03 Certificate of Amendment of Certificate of Limited Partnership, dated
April 17, 1998, is filed herewith.
10.01 Management Agreement, dated as of November 1, 1994, among the
Partnership, Demeter Management Corporation, and RXR, Inc. is filed
herewith.
10.02 Amended and Restated Customer Agreement, dated as of December 1, 1997,
between the Partnership and Dean Witter Reynolds Inc. is filed herewith.
10.03 Customer Agreement, dated as of December 1, 1997, among the Partnership,
Carr Futures, Inc., and Dean Witter Reynolds Inc. is filed herewith.
10.04 International Foreign Exchange Master Agreement, dated as of August
1, 1997, between the Partnership and Carr Futures, Inc. is filed
herewith.
10.05 Subscription and Exchange Agreement and Power of Attorney to be executed
by each purchaser of Units is incorporated by reference to Exhibit B of
the Partnership's Prospectus dated 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.
10.06 Escrow Agreement, dated September 30, 1994, among the Partnership,
Demeter Management Corporation, Dean Witter Reynolds Inc., and Chemical
Bank is filed herewith.
13.01 Annual Report to Limited Partners for the year ended December 31, 1998
is filed herewith.