UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-19511
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
(Exact name of registrant as specified in its charter)
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, 62 Fl., New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
Sepember 30, 1999 (Unaudited) and December 31, 1998......2
Statements of Operations for the Quarters Ended
September 30, 1999 and 1998 (Unaudited)..................3
Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)..................4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited)............................................. 5
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)..................6
Notes to Financial Statements (Unaudited).............7-
12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....13-22
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.......................................23-34
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 35
Item 2. Changes in Securities and Use of Proceeds.........35-37
Item 6. Exhibits and Reports on Form 8-K.....................37
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION> September 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 205,893,235 187,619,419
Net unrealized gain on open contracts11,242,606 8,435,054
Net option premiums 119,075 -
Total Trading Equity 217,254,916 196,054,473
Subscriptions receivable 7,134,632 6,021,707
Interest receivable (DWR) 677,146 591,858
Total Assets 225,066,694 202,668,038
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued brokerage fees (DWR) 1,284,077 1,164,344
Redemptions payable 1,133,365 939,381
Accrued management fees 531,342 481,797
Total Liabilities 2,948,784 2,585,522
Partners' Capital
Limited Partners (9,573,810.811 and
8,274,690.051 Units, respectively) 219,072,781 196,915,644
General Partner (133,076.700 Units) 3,045,129 3,166,872
Total Partners' Capital 222,117,910 200,082,516
Total Liabilities and Partners' Capital 225,066,694 202,6
68,038
NET ASSET VALUE PER UNIT 22.88 23.80
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (3,931,581) 18,652,736
Net change in unrealized 617,575 26,554,556
Total Trading Results (3,314,006) 45,207,292
Interest Income (DWR) 1,990,033 1,702,214
Total Revenues (1,323,973) 46,909,506
EXPENSES
Brokerage fees (DWR) 3,843,448 3,060,254
Management fees 1,590,392 1,267,982
Incentive fees - 1,828,624
Total Expenses 5,433,840 6,156,860
NET INCOME (LOSS) (6,757,813) 40,752,646
NET INCOME (LOSS) ALLOCATION
Limited Partners
(6,656,962) 40,056,058
General Partner
(100,851) 696,588
NET INCOME (LOSS) PER UNIT
Limited Partners
(0.76) 5.24
General Partner
(0.76) 5.24
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (537,861) 25,414,460
Net change in unrealized 2,807,552 22,586,491
Total Trading Results 2,269,691 48,000,951
Interest Income (DWR) 5,571,066 5,105,202
Total Revenues 7,840,757 53,106,153
EXPENSES
Brokerage fees (DWR) 11,341,093 7,767,759
Management fees 4,692,864 3,715,645
Incentive fees - 1,828,624
Transaction fees and costs - 625,328
Administrative expenses -
64,000
Total Expenses 16,033,957 14,001,356
NET INCOME (LOSS) (8,193,200) 39,104,797
NET INCOME (LOSS) ALLOCATION
Limited Partners
(8,071,457) 38,436,723
General Partner (121,743)
668,074
NET INCOME (LOSS) PER UNIT
Limited Partners
(0.92) 5.02
General Partner
(0.92) 5.02
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partners' Capital,
December 31, 1997 8,000,551.600 $163,999,307 $2,774,014
$166,773,321
Continuous Offering 682,462.929 15,265,517 -
15,265,517
Net Income - 38,436,723 668,074
39,104,797
Redemptions (780,700.008) (16,746,747) -
(16,746,747)
Partners' Capital,
September 30, 1998 7,902,314.521 $200,954,800 $3,442,088
$204,396,888
Partners' Capital,
December 31, 1998 8,407,766.751 $196,915,644 $3,166,872
$200,082,516
Continuous Offering 1,860,174.413 43,411,765 -
43,411,765
Net Loss - (8,071,457) (121,743)
(8,193,200)
Redemptions (561,053.653) (13,183,171) -
(13,183,171)
Partners' Capital,
September 30, 1999 9,706,887.511 $219,072,781 $3,045,129
$222,117,910
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (8,193,200) 3
9,104,797
Noncash item included in net income (loss):
Net change in unrealized (2,807,552) (
22,586,491)
(Increase) decrease in operating assets:
Net option premiums (119,075) -
Interest receivable (DWR) (85,288) 39,438
Due from DWR -
1,097,517
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) 119,733 1
,151,853
Accrued management fees 49,545 52,956
Incentive fees payable - 1
,308,547
Accrued administrative expenses -
(72,499)
Net cash provided by (used for) operating activities (1
1,035,837) 20,096,118
CASH FLOWS FROM FINANCING ACTIVITIES
Continuous offering 43,411,765 1
5,265,517
Increase in subscriptions receivable(1,112,925) (
3,515,676)
Increase (decrease) in redemptions payable193,984 (
639,648)
Redemptions of units (13,183,171)
(16,746,747)
Net cash provided by (used for) financing activities
29,309,653 (5,636,554)
Net increase in cash 18,273,816 1
4,459,564
Balance at beginning of period 187,619,419
158,178,925
Balance at end of period 205,893,235
172,638,489
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements include, in the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations and financial condition of Morgan Stanley Dean
Witter Spectrum Select L.P. (the "Partnership"). The financial
statements and condensed notes herein should be read in
conjunction with the Partnership's December 31, 1998 Annual
Report on Form 10-K.
1. Organization
Morgan Stanley Dean Witter Spectrum Select L.P. is a 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,
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. On June 1, 1998, the Partnership became one of the Spectrum
Series of funds. At that time, each outstanding Unit of the
Partnership was converted into 100 Units and its name changed
from Select Futures Fund L.P. The number of Units outstanding
and the Net Asset Value per Unit in the accompanying financial
statements have been
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
adjusted to reflect this conversion. 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").
2. Related Party Transactions
The Partnership'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 based on a prevailing rate on
U.S. Treasury bills. The Partnership pays brokerage fees and
brokerage expenses incurred to DWR.
3. Financial Instruments
The Partnership trades 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.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 perform under the terms of the
contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year that ended December 31, 1998.
SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required
the disclosure of average aggregate fair values and
contract/notional values, respectively, of derivative financial
instruments for an entity which carries its assets at fair value.
The application of SFAS No. 133 does not have a significant
effect on the Partnership's financial statements.
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statements of Financial Condition and totaled $11,242,606 and
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
$8,435,054 at September 30, 1999 and December 31, 1998,
respectively.
Of the $11,242,606 net unrealized gain on open contracts at
September 30, 1999, $9,702,810 related to exchange-traded futures
and futures-styled option contracts and $1,539,796 related to off-
exchange-traded forward currency contracts.
Of the $8,435,054 net unrealized gain on open contracts at
December 31, 1998, $8,982,276 related to exchange-traded futures
and futures-styled options contracts and $(547,222) related to
off-exchange-traded forward currency contracts.
Exchange-traded futures and futures-styled options contracts held
by the Partnership at September 30, 1999 and December 31, 1998
mature through September 2000 and December 1999, respectively.
Off-exchange-traded forward currency contracts held by the
Partnership at September 30, 1999 and December 31, 1998 mature
through December 1999 and March 1999, respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Condition. DWR and Carr act as the futures commission merchants
or the counterparties with respect to most of the Partnership's
assets. Exchange-traded futures and futures-styled options
contracts are marked to market on a daily basis, with variations
in value settled on a daily basis. Each of DWR and Carr, as a
futures commission merchant for all of the Partnership's exchange-
traded futures and futures-styled options contracts, are
required, pursuant to regulations of the Commodity Futures
Trading Commission ("CFTC") to segregate from their own assets,
and for the sole benefit of their commodity customers, all funds
held by them with respect to exchange-traded futures and futures-
styled options contracts, including an amount equal to the net
unrealized gain on all open futures and futures-styled options
contracts, which funds, in the aggregate, totaled $215,596,045
and $196,601,695 at September 30, 1999 and December 31, 1998,
respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of Carr, the
sole counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
payment of the net liquidating value of the transactions in the
Partnership's account with Carr (including foreign currency
contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions,
exchanges and sales of additional Units of Limited Partnership
Interest ("Unit(s)") will affect the amount of funds available
for investment in futures interests in subsequent periods. Since
they are at the discretion of Limited Partners, it is not
possible to estimate the amount and therefore, the impact of
future redemptions, exchanges or sales of additional Units.
Results of Operations
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income of
$1,323,973 and posted a decrease in Net Asset Value per Unit. The
most significant losses were recorded in the global stock index
futures markets from long S&P 500 Index futures positions as
prices fell during July after Federal Reserve Chairman Alan
Greenspan said that the economy may be growing fast enough to
warrant a second interest rate increase later this year. During
<PAGE>
August, losses were recorded from short S&P 500 Index futures
positions as prices increased after the Producer Price Index for
July showed that inflation remained under control as the economy
continued to grow. In the global interest rate futures markets,
losses were experienced during August from short U.S. interest
rate futures positions as U.S. Treasury prices moved temporarily
higher on benign inflation data, a successful corporate bond
offering and the Federal Reserve's anticipated decision to raise
interest rates. Additional losses were experienced during
September from short positions in Australian bond futures as
prices spiked higher on technically based buying and short
covering. In the currency markets, losses were recorded during
July from short euro positions as its value reversed
significantly higher versus the U.S. dollar due to a better-than-
expected German business sentiment survey and a record U.S. trade
deficit. Offsetting currency gains were recorded during August
and September from long Japanese yen positions as the value of
the yen climbed to a 44-month high versus the U.S. dollar due to
positive economic data out of that country and optimism over
Japan's economic recovery. A portion of the Partnership's
overall losses for the quarter was offset by gains recorded in
the energy markets from long positions in crude oil futures and
its refined products, unleaded gas and heating oil, as oil prices
climbed higher during August and September due to a perceived
tightness in the gasoline market and an announcement by OPEC
ministers stating that they would continue to adhere to agreed-
upon output cuts through the first quarter of 2000. In the
metals markets, gains were recorded from long gold futures
<PAGE>
positions as prices skyrocketed due to the results of the Bank of
England's second gold auction on September 21 and the
announcement of a plan by several European central banks to
restrict sales of their gold reserves for five years. Total
expenses for the three months ended September 30, 1999 were
$5,433,840, resulting in a net loss of $6,757,813. The value of
a Unit decreased from $23.64 at June 30, 1999 to $22.88 at
September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$7,840,757 and, after expenses, posted a decrease in Net Asset
Value per Unit. The most significant losses were experienced in
the global stock index futures markets from long positions in
European stock index futures as prices moved lower during January
and early February amid skepticism regarding the stability of
emerging market economies. Prices in these markets continued to
decline during May and June amid fears of higher interest rates
in the U.S. In the metals markets, losses were experienced
during the month of March from long silver futures positions as
prices declined during mid-month after Berkshire Hathaway's
annual report failed to provide any new information on the
company's silver positions. 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.
In the global interest rate futures markets, losses were
<PAGE>
recorded during September from short positions in Australian bond
futures as prices spiked higher on technically based buying and
short covering. Losses were also recorded from short Japanese
government bond futures 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 Masaru Hayami that he expected interest rates in
Japan to rise over time. Offsetting gains were recorded in this
market sector from short positions in European bond futures
during April and June as prices declined due to dampened
sentiment regarding the European Monetary Union and fears of an
interest rate hike in the U.S. A portion of the Partnership's
overall losses was offset by gains recorded in the energy markets
from long futures positions in crude oil and its refined
products, unleaded gas and heating oil, as prices climbed higher
during March following an agreement reached by both OPEC and non-
OPEC countries to cut total output beginning April 1st. Oil
prices continued to move higher throughout the third quarter due
to declining supplies, increasing demand and evidence that output
cuts were being adhered to. In soft commodities, gains were
recorded throughout a majority of the first quarter from short
cocoa futures positions as prices declined amid fears that
Brazil's financial troubles will have an adverse effect on supply
and demand. Total expenses for the nine months ended September
30, 1999 were $16,033,957, resulting in a net loss of $8,193,200.
<PAGE>
The value of a Unit decreased from $23.80 at December 31, 1998 to
$22.88 at September 30, 1999.
For the Quarter and Nine Months Ended September 30, 1998
For the quarter ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$46,909,506 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the financial futures
markets from long positions in U.S., European (particularly
German and French), and Japanese interest rate futures positions
as investors flocked to the perceived "safe haven" investments
amid the recent global economic and political uncertainty.
Additional gains were recorded in the agricultural markets
primarily from short corn futures positions as grain prices
declined during July and August on reports of abundant supplies
and decreasing demand. In currencies, smaller gains were produced
from short Canadian dollar positions during July and August as
the value of this currency reached its lowest level ever versus
the U.S. dollar. Transactions involving the Mexican peso and the
German mark contributed smaller currency gains during September.
In the energy markets, short unleaded gas futures positions
resulted in profits as gas prices dropped during July and August
due to continued inventory increases. A portion of the
Partnership's overall gains for the quarter was offset by losses
recorded in the metals markets primarily from short gold futures
positions held during September as precious metals prices jumped
higher due to
<PAGE>
the U.S. dollar's weakness. Likewise, short silver futures
positions resulted in smaller losses. Short positions in base
metals futures also resulted in losses as prices moved higher in
early July. In the soft commodities markets, long positions in
coffee futures produced losses during August as coffee prices
fell on increased supply and shrinking demand. Total expenses
for the three months ended September 30, 1998 were $6,156,860,
resulting in net income of $40,752,646. The value of a Unit
increased from 20.63 at June 30, 1998 to 25.87 at September 30,
1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$53,106,153 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the financial futures
markets from long European (particularly German and French), and
U.S. interest rate futures positions as prices in these markets
soared during the last quarter. Smaller gains were recorded in
this market complex from short positions in global stock index
futures, particularly German, U.S. and French stock index
futures, as equity prices around the world moved significantly
lower during August. Smaller gains were produced in the energy
markets as short crude oil futures positions benefited from price
drops in oil during January, February, June, July and August.
The agricultural markets contributed smaller gains from short
positions in soybean meal futures during the first quarter. A
portion of the Partnership's overall gains was offset by losses
in the metals markets resulting from choppy price movement in
silver and gold futures during the first quarter, as well as
losses
<PAGE>
during September from short positions as precious metals prices
moved sharply higher. Similarly, trading in copper futures
created losses during a majority of the first half of the year
from trendless price movement, as well as losses recorded during
July from short positions as base metals prices moved higher
early in the month. In the currency markets, transactions
involving the British pound resulted in losses as its value moved
without consistent direction during a majority of the first nine
months of the year. Additional currency losses resulted from
trading in the Swiss franc during July and August and the
Japanese yen during September. The soft commodities markets
recorded smaller losses from cotton futures trading due to
weather related volatility in cotton prices during August,
offsetting first quarter gains from short sugar futures
positions. Total expenses for the nine months ended September
30, 1998 were $14,001,356, resulting in net income of
$39,104,797. The value of a Unit increased from 20.85 at
December 31, 1997 to 25.87 at September 30, 1998.
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
<PAGE>
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 through which it trades, Carr, or the
Trading Advisors - 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
Advisors throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Advisors.
<PAGE>
A worst case scenario would be one in which trading of contracts
on behalf of the Partnership becomes impossible as a result of
the Year 2000 problem encountered by any third parties. A less
catastrophic but more likely scenario would be one in which
trading opportunities diminish as a result of technical problems
resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun developing various "contingency
plans" in the event that the systems of such third parties fail.
Demeter intends to consult closely with MSDW in implementing
those plans. Despite the best efforts of both Demeter and MSDW,
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
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 in certain
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.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market-sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of
market-sensitive instruments is integral, not incidental, to the
Partnership's primary business activities.
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
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.
<PAGE>
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the Partner-
ship's market risk must be qualified by the inherent uncertainty
of its speculative trading, which may cause future losses and
volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market-sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 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.
<PAGE>
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisors is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a
confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in
trading portfolio value. The VaR model generally takes into
account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and
commodity prices, interest rates, foreign exchange rates, as well
as correlation that exists among these variables. The
hypothetical changes in portfolio value are based on daily
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
<PAGE>
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 table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by market category as of September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$222 million.
Primary Market September 30, 1999
Risk Category Value at Risk
Interest Rate (0.50)%
Currency (1.20)
Equity (0.31)
Commodity (1.48)
Aggregate Value at Risk (1.93)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at September 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can
<PAGE>
change significantly over any given time period or even within a
single trading day. Such changes in open positions could
materially impact market risk as measured by VaR either
positively or negatively.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
Net Assets for the four quarterly reporting periods from October
1, 1998 through September 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (1.61)% (0.46)% (0.91)%
Currency (1.52) (0.51) (1.08)
Equity (0.82) (0.31) (0.51)
Commodity (1.48) (0.77) (1.00)
Aggregate Value at Risk (2.83)% (1.28)% (1.91)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements, as such margin requirements generally range between
2% and 15% of contract face value. Additionally, due to the use
of leverage, the face value of the market sector instruments held
by the Partnership is typically many times the total
capitalization of the Partnership. The financial magnitude of
the Partnership's open positions thus creates a "risk of ruin"
not typically found in other investment vehicles. Due to the
relative size of the positions held, certain market conditions
may cause the Partnership to incur losses greatly in excess of
VaR within a short period of time. The foregoing VaR tables, as
<PAGE>
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 September 30, 1999 and for the end of the four
quarterly reporting periods from October 1, 1998 through
September 30, 1999. Since VaR is based on historical data, VaR
should not be viewed as predictive of the Partnership's future
financial performance or its ability to manage and monitor risk
and there can be no assurance that the Partnership's actual
losses on a particular day will not exceed the VaR amounts
indicated or that such losses will not occur more than 1 in 100
trading days.
<PAGE>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well
as any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
83%) of its available assets in cash at DWR. A decline in short-
term interest rates will result in a decline in the Partnership's
cash management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account
the leverage, optionality and multiplier features of the
Partnership's market sensitive instruments.
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 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
<PAGE>
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expropria-
tions, illiquid markets, the emergence of dominant fundamental
factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased
regulation and many other factors could result in material losses
as well as in material changes to the risk exposures and the risk
management strategies of the Partnership. Investors must be
prepared to lose all or substantially all of their investment in
the Partnership.
The following were the primary trading risk exposures of the
Partnership as of September 30, 1999, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
Currency. The primary market exposure at September 30, 1999
in the Partnership was 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 third
quarter of 1999, the Partnership's major exposures were in the
euro currency crosses and outright U.S. dollar positions.
(Outright positions consist of the U.S. dollar vs. other
<PAGE>
currencies. These other currencies include the major and minor
currencies). Demeter does not anticipate that the risk profile
of the Partnership's currency sector will change significantly in
the future. The currency trading VaR figure includes foreign
margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk inherent to the
dollar-based Partnership in expressing VaR in a functional
currency other than dollars.
Interest Rate. The Partnership's exposure in the interest
rate market complex was spread across the U.S., European,
Japanese, Australian and German interest rate sectors. Interest
rate movements directly affect the price of the sovereign bond
futures positions held by the Partnership and indirectly affect
the value of its stock index and currency positions. Interest
rate movements in one country as well as relative interest rate
movements between countries materially impact the Partnership's
profitability. The Partnership's primary interest rate exposure
is generally to interest rate fluctuations in the United States
and the other G-7 countries. However, the Partnership also takes
futures positions in the government debt of smaller nations -
e.g. Australia and Spain. 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.
<PAGE>
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. As of September 30, 1999, the Partnership's primary
exposures were in the S&P 500 (U.S.), All Ordinaries (Australia)
and FT-SE (Britain) stock indices. The Partnership is primarily
exposed to the risk of adverse price trends or static markets in
the U.S., European and Japanese indices. (Static markets would
not cause major market changes but would make it difficult for
the Partnership to avoid being "whipsawed" into numerous small
losses).
Commodity.
Metals. The Partnership's 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 significant amount
of exposure was evident in the gold market as the price of gold
increased dramatically following bullish comments by the European
Central Bank. However, silver prices have also been volatile
over this period, and the Trading Advisors have, from time to
time, taken substantial positions as perceived market
opportunities developed. Demeter anticipates that gold and
<PAGE> silver
will remain the primary metals market exposure for the
Partnership.
Energy. On September 30, 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 about
100% this year, and, given that the agreement by OPEC to cut
production is approaching expiration in March 2000, it is
possible that volatility will remain on the high end.
Significant profits and losses have been and are expected to
continue to be experienced in this market. Natural gas, also a
primary energy market exposure, has exhibited more volatility
than the oil markets on an intra-day and daily basis and is
expected to continue in this choppy pattern.
Soft Commodities and Agriculturals. On September 30, 1999,
the Partnership had a reasonable amount of exposure in the
markets that comprise these sectors. Most of the exposure,
however, was in the coffee, corn and soybeans markets. Supply
and demand inequalities, severe weather disruption and market
expectations affect price movements in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 1999:
<PAGE>
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in British pounds, Japanese yen, Mexican
pesos, euros and South African rands. 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 means by which the Partnership and the Trading Advisors,
severally, attempt to manage the risk of the Partnership's open
positions are essentially the same in all market categories
traded. Demeter attempts to manage the Partnership's market
exposure by (i) diversifying the Partnership's assets among
different Trading Advisors, each of whose strategies focus on
different market sectors and trading approaches, and (ii),
monitoring the performance of the Trading Advisors on a daily
basis. In addition, the Trading Advisors establish diversifi-
cation guidelines, often set in terms of the maximum margin to be
committed to positions in any one market sector or market-
sensitive instrument. One should be aware that certain Trading
Advisors treat their risk control policies as strict rules,
whereas others treat such policies as general guidelines.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash, which is the only Partnership
investment directed by Demeter, rather than the Trading Advisors.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's 1998 Form 10-K:
In the New York action, the motion to dismiss the amended
complaint with prejudice has been fully briefed and argued and
the Dean Witter Parties are awaiting the New York Supreme Court's
decision.
In the California action, on September 24, 1999, the Superior
Court in the State of California entered an order dismissing the
consolidated amended complaint without prejudice on consent.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership initially registered 60,000 Units (prior to the
100 for one Unit conversion on April 30, 1998) pursuant to a
Registration Statement on Form S-1, which became effective on May
17, 1991 (SEC File Number 33-39667), and 10,000 (pre-conversion)
Units at a supplemental closing pursuant to a new Registration
Statement on Form S-1, which became effective on August 23, 1991
(SEC File No. 33-42380). The offering commenced on May 17, 1991
and terminated as of August 31, 1991, with 60,853.334 Units sold.
The aggregate price of the offering amount registered was
$69,380,300, based upon the initial offering price of $1,000 per
Unit and $938.03 per Unit at the supplemental closing (the
<PAGE>
initial closing and supplemental closing, hereinafter, the
"Initial Offering"). The aggregate offering price of the Units
sold during the Initial Offering was $60,268,482.
The Partnership registered an additional 75,000 Units (pre-
conversion) pursuant to a new Registration Statement of Form S-1,
which became effective on August 31, 1993 (SEC File Number 33-
65072) (the "Second Offering"). The Second Offering commenced on
August 31, 1993 and terminated as of September 30, 1993, with
74,408.337 Units sold. The aggregate price of the Second
Offering amount registered was $102,744,000, based upon an
initial offering price of $1,369.92. The aggregate price of the
Units sold during the Second Offering was $116,617,866.
The Partnership registered an additional 60,000 Units (pre-con-
version) pursuant to another Registration Statement on Form S-1,
which became effective on October 17, 1996 (SEC File Number 333-
1918), (the "Third Offering"). The Third Offering commenced on
October 17, 1996 and terminated as of March 3, 1997, with
10,878.000 Units sold. The aggregate price of the Third Offering
amount registered was $98,247,000, based upon an initial offering
price of $1,637.45. The aggregate price of the Units sold during
the Third Offering was $22,308,326.
The Partnership registered an additional 1,500,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on May 11, 1998 (SEC File Number 333-47829).
<PAGE>
Commencing with the April 30, 1998 monthly closing, each
previously outstanding Unit was converted into 100 Units.
5,000,000 additional Units were registered pursuant to a
Registration Statement on Form S-1 (File No. 333-68773) effective
January 21, 1999.
The managing underwriter for the Partnership is DWR.
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 September 30, 1999, 17,784,495.242 Units of the
Partnership were sold, leaving 3,329,471.858 Units unsold as of
September 30, 1999. The aggregate price of the Units sold
through September 30, 1999 is $272,904,028.
Since no expenses are chargeable against proceeds, 100% of the
proceeds of the offering have been applied to the working capital
of the Partnership for use in accordance with the "Investment
Programs, Use of Proceeds and Trading Policies" section of the
Prospectus.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None.
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Dean Witter Spectrum
Select L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
November 12, 1999 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and Chief Financial
Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
Morgan Stanley Dean Witter Spectrum Select L.P. and is qualified in
its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 205,893,235
<SECURITIES> 0
<RECEIVABLES> 7,811,778<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 225,066,694<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 225,066,694<F3>
<SALES> 0
<TOTAL-REVENUES> 7,840,757<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,033,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,193,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,193,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,193,200)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $677,146 and
subscriptions receivable of $7,134,632.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $11,242,606 and net option premiums
of $119,075.
<F3>Liabilities include redemptions payable of $1,133,365, accrued
brokerage fees of $1,284,077 and accrued management fees
of $531,342.
<F4>Total revenue includes realized trading revenue of $(537,861),
net change in unrealized of $2,807,552 and interest income of
$5,571,066.
</FN>
</TABLE>
