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. 0-26280
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3782225
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
c/o Demeter Management Corporation
Two World Trade Center, 62 Fl., New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC 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 September 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
Sepember 30, 1999 and 1998 (Unaudited)...................4
Statements of Changes in Partners' Capital for the
Nine Months Ended Sepember 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-
11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....12-21
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ..................................... 21-33
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 34
Item 2. Changes in Securities and Use of Proceeds.........34-36
Item 6. Exhibits and Reports on Form 8-K.....................36
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC 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 86,236,295 63,919,054
Net unrealized gain on open contracts16,536,849 5,299,335
Net option premiums (394,630) 225,646
Total Trading Equity 102,378,514 69,444,035
Subscriptions receivable 1,326,900 1,796,051
Interest receivable (DWR) 280,211 205,247
Total Assets 103,985,625 71,445,333
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Incentive fees payable 1,286,786 -
Redemptions payable 660,294 398,976
Accrued brokerage fees (DWR) 536,197 405,606
Accrued management fees 286,239 218,976
Total Liabilities 2,769,516 1,023,558
Partners' Capital
Limited Partners (6,554,150.884 and
6,031,262.407 Units, respectively) 100,160,172 69,6
71,636
General Partner (69,097.028 and
64,937.294 Units, respectively) 1,055,937 750,139
Total Partners' Capital 101,216,109 70,421,775
Total Liabilities and Partners' Capital 103,985,625 71,445,333
NET ASSET VALUE PER UNIT 15.28 11.55
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit:
Realized 12,435,209 8,082,719
Net change in unrealized 5,952,922 6,700,615
Total Trading Results 18,388,131 14,783,334
Interest Income (DWR) 769,843 535,743
Total Revenues 19,157,974 15,319,077
EXPENSES
Brokerage fees (DWR) 1,537,297 958,070
Incentive fees 1,431,393 178,428
Management fees 822,398 514,836
Total Expenses 3,791,088 1,651,334
NET INCOME 15,366,886 13,667,743
NET INCOME ALLOCATION
Limited Partners 15,205,244
13,522,556
General Partner
161,642 145,187
NET INCOME PER UNIT
Limited Partners
2.34 2.33
General Partner
2.34 2.33
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit:
Realized 19,657,278 2,125,953
Net change in unrealized 11,237,514 4,475,848
Total Trading Results 30,894,792 6,601,801
Interest Income (DWR) 2,025,084 1,732,273
Total Revenues 32,919,876 8,334,074
EXPENSES
Brokerage fees (DWR) 4,078,080 3,169,563
Incentive fees 2,451,152 178,428
Management fees 2,199,368 1,675,367
Total Expenses 8,728,600 5,023,358
NET INCOME 24,191,276 3,310,716
NET INCOME ALLOCATION
Limited Partners
23,935,478 3,271,967
General Partner
255,798 38,749
NET INCOME PER UNIT
Limited Partners
3.73 .55
General Partner
3.73 .55
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC 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 5,517,887.455 $58,482,349 $613,232
$59,095,581
Continuous Offering1,196,114.812 11,881,056 50,000
11,931,056
Net Income - 3,271,967 38,749
3,310,716
Redemptions (899,042.323) (8,857,730) -
(8,857,730)
Partners' Capital,
September 30, 1998 5,814,959.944 $64,777,642 $701,981
$65,479,623
Partners' Capital,
December 31, 1998 6,096,199.701 $69,671,636 $750,139
$70,421,775
Continuous Offering 994,405.918 12,368,782 50,000
12,418,782
Net Income - 23,935,478 255,798
24,191,276
Redemptions (467,357.707) (5,815,724) -
(5,815,724)
Partners' Capital,
September 30, 1999 6,623,247.912 $100,160,172 $1,055,937
$101,216,109
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC 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 24,191,276
3,310,716
Noncash item included in net income:
Net change in unrealized (11,237,514) (
4,475,848)
(Increase) decrease in operating assets:
Net option premiums 620,276 299,724
Interest receivable (DWR) (74,964) 30,741
Increase (decrease) in operating liabilities:
Incentive fees payable 1,286,786 178,429
Accrued brokerage fees (DWR) 130,591 (25,516)
Accrued management fees 67,263
(7,982)
Net cash provided by (used for) operating activities 14,983,714
(689,736)
CASH FLOWS FROM FINANCING ACTIVITIES
Continuous offering 12,418,782 1
1,931,056
Decrease in subscriptions receivable469,151 159,220
Increase (decrease) in redemptions payable 261,318
(296,022)
Redemptions of units (5,815,724)
(8,857,730)
Net cash provided by financing activities 7,333,527
2,936,524
Net increase in cash 22,317,241 2
,246,788
Balance at beginning of period 63,919,054
57,104,003
Balance at end of period 86,236,295
59,350,791
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC 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 Strategic 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 Strategic
L.P. is a limited partnership organized to engage primarily in
the speculative trading of futures, forward and options
contracts, physical commodities and other commodity interests,
including foreign currencies, financial instruments, precious and
industrial metals, energy products, and agriculturals
(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
Technical L.P. and Morgan Stanley Dean Witter Spectrum Select
L.P. The general partner is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter
Reynolds Inc. ("DWR") and an unaffiliated clearing commodity
broker, Carr Futures Inc. ("Carr"), provides clearing and
execution services. Both Demeter and DWR are wholly-
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW").
The Trading Advisors to the Partnership are Blenheim Investments,
Inc., Willowbridge Associates Inc. and Allied Irish Capital
Management, Ltd. ("AICM"), (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 to DWR.
3. Financial Instruments
The Partnership trades futures, forward and options contracts,
physical commodities and other commodity interests, including
foreign currencies, financial instruments, precious and
industrial metals, energy products, and agriculturals. 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.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 $16,536,849 and
$5,299,335 at September 30, 1999 and December 31, 1998,
respectively.
Of the $16,536,849 net unrealized gain on open contracts at
September 30, 1999, $16,536,535 related to exchange-traded
futures and futures-styled option contracts and $314 related to
off-exchange-traded forward currency contracts.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The $5,299,335 net unrealized gain on open contracts at December
31, 1998 related to exchange-traded futures and futures-styled
options contracts.
Exchange-traded futures and futures-styled option contracts held
by the Partnership at September 30, 1999 and December 31, 1998
mature through December 2000 and March 2000, respectively. Off-
exchange-traded forward currency contracts held by the
Partnership at September 30, 1999 mature through October 1999.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial Condition. DWR and Carr act as the futures commission
merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures and futures-styled
options contracts are marked to market on a daily basis, with
variations in value settled on a daily basis. Each of DWR and
Carr, as a futures commission merchant for all of the
Partnership's exchange-traded futures and futures-styled options
contracts, are required, pursuant to regulations of the Commodity
Futures Trading Commission ("CFTC") to segregate from their own
assets, and for the sole benefit of their commodity customers,
all funds held by them with respect to exchange-traded futures
and futures-styled
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
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 $102,772,830
and $69,218,389 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 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 revenues including interest income of
$19,157,974 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the energy markets
from long futures positions in crude, heating and gas oil, and
unleaded gas, as oil prices climbed higher throughout the quarter
after OPEC ministers confirmed that they will uphold their global
cutbacks until April of next year. Reports of declining crude
<PAGE>
oil and gasoline inventories also boosted prices in this market.
In the metals markets, significant gains were recorded from long
gold futures 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. Additional
gains were recorded from long silver futures positions as silver
prices increased following gold's lead. These gains were
partially offset by losses recorded in the global interest rate
futures markets from short U.S. interest rate futures positions
as U.S. Treasury prices temporarily climbed higher during mid-
July as talks of economic problems in Latin America sent
Argentine and Brazilian stock markets sharply lower, thus fueling
demand for the safety of U.S. government securities. Losses were
also recorded in this market complex during September as domestic
bond prices moved higher on the release of benign inflation data
and diminished fears of another interest rate increase by the
Federal Reserve. In the currency markets, losses were
experienced during July from short Japanese yen positions as its
value reached a 5 1/2 month high versus the U.S. dollar due to
inflationary pressures in the United States and optimistic
prospects for economic growth in Japan. In agriculturals, losses
were recorded in early July from long soybean futures positions
as prices declined on forecasts for favorable crop weather in the
U.S. During August, additional losses were recorded from short
positions in soybeans, soybean meal and soybean oil futures as
prices increased significantly amid drier-than-expected weather
in the U.S. Midwest, forecasts for very little rain and concerns
<PAGE>
about shriveling production. Total expenses for the three months
ended September 30, 1999 were $3,791,088, resulting in net income
of $15,366,886. The value of a Unit increased from $12.94 at June
30, 1999 to $15.28 at September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$32,919,876 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded from long futures
positions in crude oil and its refined products, unleaded gas,
heating oil and gas 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 the metals markets, 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. Additional gains were recorded from
long copper futures positions as copper prices soared during mid-
April on a wave of fund buying and during June on news that a
major U.S. producer would cut back production. Copper prices
also moved higher during August and September resulting in
profits for the Partnership's long positions. In the global
interest rate futures markets, gains were recorded during
<PAGE>
February from short U.S. interest rate futures positions as
prices dropped in reaction to Federal Reserve Chairman Alan
Greenspan's warnings that a strong economy could reignite
inflation. A higher-than-expected rise in the Consumer Price
Index and fears of a tighter Federal Reserve monetary policy
resulted in additional gains in this market during May and June.
These gains were partially offset by losses recorded in the
currency markets during January from long Japanese yen positions
after an intervention by the Bank of Japan boosted the U.S.
dollar against the yen and helped ease concerns about the impact
of a strong yen on Japanese exports. Losses were also recorded
during March from short Japanese yen positions as the value of
the yen increased versus the U.S. dollar amid new signs that
Japan's economy may be on the mend. Losses were recorded from
short Japanese yen positions during June and July as its value
reached a 5 1/2 month high versus the U.S. dollar due to
inflationary pressures in the United States and optimistic
prospects for economic growth in Japan. In the agricultural
markets, losses were recorded during May from long positions in
soybean futures as prices declined due to favorable planting
forecasts and a bearish USDA supply-demand report. During early-
July losses were recorded from long soybean futures positions as
prices declined on forecasts for favorable crop weather in the
U.S. During August, additional losses were recorded from short
positions in soybeans, soybean meal and soybean oil futures as
prices increased significantly amid drier-than-expected weather
<PAGE>
in the U.S. Midwest, forecasts for very little rain and concerns
about shriveling production. In the global stock index futures
markets, losses were recorded during March and April from short
S&P 500 Index futures positions as equity prices increased in
reaction to Wall Street reaching a major milestone, as the Dow
Jones Industrial Average hit 10,000 for the first time and in
response to an interest rate cut by the European Central Bank.
Total expenses for the nine months ended September 30, 1999 were
$8,728,600, resulting in net income of $24,191,276. The value of
a Unit increased from $11.55 at December 31, 1998 to $15.28 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
$15,319,077 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded during September
primarily from long positions in U.S., European, and particularly
German interest rate futures as both domestic and European bond
prices pushed sharply higher due to a flight-to-quality by
investors seeking "safety" from the recent global economic
uncertainty. In the energy markets, long crude oil futures
positions produced additional gains during September as oil
prices increased due to shrinking supplies and fear that
Hurricane Georges would reduce production in the Gulf of Mexico.
These gains mitigated losses incurred during July and August in
this market as oil prices declined amid speculation that OPEC
would not follow through with a production cut in the near
future. A portion of the
<PAGE>
Partnership's overall gains was offset by losses recorded in the
soft commodities markets from long cocoa futures positions as
cocoa prices moved lower throughout a majority of the quarter.
Cocoa prices reached 18-month lows during September amid selling
pressure by Ghanaian producers. Additional losses were
experienced in the agricultural markets from long positions in
soybean, soybean products and corn futures as grain prices
steadily declined throughout the quarter on reports of strong
crops and lower demand from overseas. Smaller losses were
recorded in the metals markets during July from short copper and
aluminum futures positions as base metals prices reversed higher
early in the month. Total expenses for the three months ended
September 30, 1998 were $1,651,334, resulting in net income of
$13,667,743. The value of a Unit increased from $8.93 at June
30, 1998 to $11.26 at September 30, 1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$8,334,074 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded from long German bond
futures positions as prices moved higher during a majority of the
first half of the year coupled with a sharp push higher during
the third quarter. Likewise, long positions in other European
and U.S. interest rate futures contributed additional gains in
the financial futures sector as investors flocked to these
perceived safe investments amid economic and political
instability worldwide during August and September. A portion of
the Partnership's overall gains was offset by losses incurred in
the soft
<PAGE>
commodities and currency markets. Long sugar futures positions
resulted in losses as sugar prices moved lower throughout the
first quarter. Trading in the Japanese yen also resulted in year-
to-date losses, particularly from short positions held during
early April as the value of the yen spiked suddenly higher versus
the U.S. dollar amid new optimism regarding the Japanese economic
stimulus package. In the metals markets, smaller losses were
experienced from long silver futures positions as silver prices
declined sharply during May. In the agricultural markets, long
grain futures positions held during the third quarter incurred
losses as prices declined on news of increasing supplies amid
decreasing demand, returning previously recorded gains in this
sector. Total expenses for the nine months ended September 30,
1998 were $5,023,358, resulting in net income of $3,310,716. The
value of a Unit increased from $10.71 at December 31, 1997 to
$11.26 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
or after January 1, 2000. Such a failure could adversely affect
the
<PAGE>
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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
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
<PAGE>
by market category as of September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$101 million.
Primary Market September 30, 1999
Risk Category Value at Risk
Equity (1.78)%
Interest Rate (0.52)
Currency (1.58)
Commodity (3.13)
Aggregate Value at Risk (3.96)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at September 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can
change significantly over any given time period or even within a
single trading day. Such changes in open positions could
materially impact market risk as measured by VaR either
positively or negatively.
<PAGE>
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
Equity (2.41)% (0.23)% (1.49)%
Interest Rate (1.97) (0.31) (1.16)
Currency (2.98) (0.07) (1.76)
Commodity (3.13) (0.46) (1.77)
Aggregate Value at Risk (4.88)% (0.58)% (3.10)%
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 require-
ments, 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 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
<PAGE>
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.
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
77%) of its available assets in cash at DWR. A decline in short-
term interest
<PAGE>
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 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
<PAGE>
exposures and the risk management st4rategies 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.
Equity. The primary equity exposure at September 30, 1999
was to equity price risk in the G-7 countries. The stock index
futures traded by the Partnership are by law limited to futures
on broadly based indices. As of September 30, 1999, the
Partnership's primary exposure was in the S&P 500 (U.S.) stock
index. 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).
Interest Rate. The Partnership's exposure in the interest
rate market complex was spread across the U.S., Japanese, German
and European 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
<PAGE>
interest rate fluctuations in the United States and the other G-7
countries. Demeter anticipates that G-7 interest rates will
remain the primary interest rate exposure of the Partnership for
the foreseeable future. The changes in interest rates which have
the most effect on the Partnership are changes in long-term, as
opposed to short-term, rates. Most of the speculative futures
positions held by the Partnership are in medium - to long-term
instruments. Consequently, even a material change in short-term
rates would have little effect on the Partnership, were the
medium-to-long term rates to remain steady.
Currency. The Partnership's 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. For the
third quarter of 1999, the Partnership's major exposures were in
outright U.S. dollar positions. (Outright positions consist of
the U.S. dollar vs. other currencies. These other currencies
include the major and minor currencies). Demeter does not
anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future. The currency
trading VaR figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the dollar-based Partnership in
expressing VaR in a functional currency other than dollars.
<PAGE>
Commodity.
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.
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 and nickel, the principal
market exposures of the Partnership have consistently been in
precious metals, gold and silver. A significant amount of
exposure was evident in the gold market as the price of gold
increased dramatically following bullish comments by the European
Central Bank. Silver prices have also been volatile over this
period, and the Trading Advisors have taken substantial positions
when perceived market opportunities developed. Demeter
<PAGE>
anticipates that gold and silver will remain the primary metals
market exposure for the Partnership.
Soft Commodities and Agriculturals. On September 30, 1999,
the Partnership had a reasonable amount of exposure in the
markets that comprise these sectors. Most of the exposure,
however, was in the cocoa, soybeans and wheat markets. Supply
and demand inequalities, severe weather disruption and market
expectations affect price movements in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros, British pounds and Swiss francs.
The Partnership controls the non-trading risk of these balances
by regularly converting these balances back into dollars upon
liquidation of the respective 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
<PAGE>
Trading Advisors on a daily basis. In addition, the Trading
Advisors establish diversification guidelines, often set in terms
of the maximum margin to be committed to positions in any one
market sector or market-sensitive instrument. 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, Morgan Stanley Dean Witter Spectrum Technical L.P.
("Spectrum Technical") and Morgan Stanley Dean Witter Spectrum
Global Balanced L.P. ("Spectrum Global Balanced") collectively
registered 10,000,000 Units pursuant to a Registration Statement on
Form S-1, which became effective on September 15, 1994 (SEC File
Number 33-80146). While such Units were not allocated to the
Partnership, Spectrum Technical and Spectrum Global Balanced at
that time, they were subsequently allocated for convenience
purposes as follows: the Partnership 4,000,000, Spectrum Technical
4,000,000 and Spectrum Global Balanced 2,000,000. The Partnership,
Spectrum Technical and Spectrum Global Balanced collectively
registered an additional 20,000,000 Units pursuant to a new
Registration Statement
<PAGE>
on Form S-1, which became effective on January 31, 1996 (SEC File
Number 333-00494); such units were allocated to the Partnership,
Spectrum Technical and Spectrum Global Balanced as follows: The
Partnership 6,000,000, Spectrum Technical 9,000,000 and Spectrum
Global Balanced 5,000,000. The Partnership, Spectrum Technical and
Spectrum Global Balanced collectively registered an additional
8,500,000 Units pursuant to another Registration Statement on Form
S-1, which became effective on April 30, 1996 (SEC File Number 333-
3222); such Units were allocated to the Partnership, Spectrum
Technical and Spectrum Global Balanced as follows: The Partnership
2,500,000, Spectrum Technical 5,000,000 and Spectrum Global
Balanced 1,000,000.
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, 9,348,166.257 Units were sold, leaving
3,151,833.743 Units unsold as of September 30, 1999. The aggregate
price of the Units sold through September 30, 1999 is $100,745,926.
Since DWR has paid all offering expenses and no other 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
<PAGE>
Trading Policies" section of the Prospectus included as part of
each Registration Statement.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None.
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Dean Witter Spectrum
Strategic 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 Strategic 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> 86,236,295
<SECURITIES> 0
<RECEIVABLES> 1,607,111<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,985,625<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 103,985,625<F3>
<SALES> 0
<TOTAL-REVENUES> 32,919,876<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,728,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,191,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 24,191,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,191,276
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscription receivable of $1,326,900 and interest
receivable of $280,211.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $16,536,849 and net option
premiums of $(394,630).
<F3>Liabilities include redemptions payable of $660,294, accrued
brokerage fees of $536,197,and accrued management fees of
$286,239 and incentive fees payable of $1,286,786.
<F4>Total revenue includes realized trading revenue of $19,657,278, net
change in unrealized of $11,237,514 and interest income of $2,025,084.
</FN>
</TABLE>
