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 March 31, 2000 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
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition March 31, 2000
(Unaudited) and December 31, 1999........................2
Statements of Operations for the Quarters Ended
March 31, 2000 and 1999 (Unaudited)......................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 2000 and 1999
(Unaudited)..............................................4
Statements of Cash Flows for the Quarters Ended
March 31, 2000 and 1999 (Unaudited)......................5
Notes to Financial Statements (Unaudited).............6-
11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....12-18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ..................................... 18-31
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 32
Item 2. Changes in Securities and Use of Proceeds ........32-34
Item 5. Other Information................................... 34
Item 6. Exhibits and Reports on Form 8-K.....................34
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
2000 1999
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 84,075,566 97,808,328
Net unrealized gain on open contracts3,854,115 9,563,813
Net option premiums
108,928 (11,653)
Total Trading Equity 88,038,609 107,360,488
Subscriptions receivable 1,648,663 1,743,958
Interest receivable (DWR)
319,779 339,582
Total Assets 90,007,051 109,444,028
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,349,921 847,860
Accrued brokerage fees (DWR) 539,748 590,001
Accrued management fees 282,097 313,646
Total Liabilities 2,171,766 1,751,507
Partners' Capital
Limited Partners (7,001,397.561 and
6,723,390.378 Units, respectively) 86,909,522 106,5
42,362
General Partner (74,579.110 and
72,581.141 Units, respectively) 925,763 1,150,159
Total Partners' Capital 87,835,285 107,692,521
Total Liabilities and Partners' Capital 90,007,051 109,44
4,028
NET ASSET VALUE PER UNIT 12.41 15.85
<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 March 31,
2000 1999
$ $
<S> <C> <C>
REVENUES
Trading profit (loss):
Realized (15,636,889) 5,490,705
Net change in unrealized (5,709,698) (263,612)
Total Trading Results (21,346,587) 5,227,093
Interest Income (DWR)
1,009,168 621,201
Total Revenues (20,337,419) 5,848,294
EXPENSES
Brokerage fees (DWR)
1,842,276 1,265,457
Management fees
973,088 686,283
Incentive fees
662,823 1,012,167
Total Expenses
3,478,187 2,963,907
NET INCOME (LOSS) (23,815,606) 2,884,387
NET INCOME (LOSS) ALLOCATION
Limited Partners (23,566,210)
2,854,127 General Partner
(249,396) 30,260
NET INCOME (LOSS) PER UNIT
Limited Partners
(3.44) .47 General
Partner
(3.44) .47
<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 Quarters Ended March 31, 2000 and 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
Partners' Capital,
December 31, 1998 6,096,199.701 $69,671,636 $750,139
$70,421,775
Offering of Units 270,751.838 3,155,264 50,000
3,205,264
Net Income
- - 2,854,127 30,260
2,884,387
Redemptions (161,367.385) (1,933,488)
- - (1,933,488)
Partners' Capital,
March 31, 1999 6,205,584.154 $73,747,539 $830,399
$74,577,938
Partners' Capital,
December 31, 1999 6,795,971.519 $106,542,362 $1,150,159
$107,692,521
Offering of Units 552,786.769 7,543,441 25,000 7,568,441
Net Loss
- - (23,566,210) (249,396)
(23,815,606)
Redemptions (272,781.617) (3,610,071)
- - (3,610,071)
Partners' Capital,
March 31, 2000 7,075,976.671 $86,909,522 $925,763
$87,835,285
<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 Quarters Ended March 31,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss)
(23,815,606) 2,884,387
Noncash item included in net income (loss):
Net change in unrealized 5,709,698
263,612
(Increase) decrease in operating assets:
Net option premiums
(120,581) 705,904
Interest receivable (DWR) 19,803
(21,262)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) (50,253)
20,529
Accrued management fees
(31,549) 15,375
Net cash provided by (used for) operating activities (18
,288,488) 3,868,545
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units
7,568,441 3,205,264
Decrease in subscriptions receivable 95,295
442,658
Increase in redemptions payable
502,061
336,836
Redemptions of Units (3,610,071)
(1,933,488)
Net cash provided by financing activities
4,555,726 2,051,270
Net increase (decrease) in cash
(13,732,762)
5,919,815
Balance at beginning of period
97,808,328
63,919,054
Balance at end of period 84,075,566
69,838,869
<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, 1999 Annual
Report on Form 10-K.
1. Organization
Morgan Stanley Dean Witter Spectrum Strategic L.P. is a Delaware
limited partnership organized to engage primarily in the
speculative trading of futures and forward contracts, options on
futures contracts, physical commodities and other commodity
interests, including but not limited to foreign currencies,
financial instruments, metals, energy and agricultural products
(collectively, "futures interests"). The Partnership is one of
the Morgan Stanley Dean Witter Spectrum Series of funds,
comprised of the Partnership, Morgan Stanley Dean Witter Spectrum
Commodity L.P. (formerly, Morgan Stanley Tangible Asset Fund
L.P.), Morgan Stanley Dean Witter Spectrum Global Balanced L.P.,
Morgan Stanley Dean Witter Spectrum Select L.P. and Morgan
Stanley Dean Witter Spectrum Technical L.P.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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. The Trading
Advisors to the Partnership are Blenheim Investments, Inc.,
Willowbridge Associates Inc. and Allied Irish Capital Management,
Ltd., (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. Brokerage expenses incurred by the
Partnership are paid 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.
Futures and forwards represent contracts for delayed delivery of
an instrument at a specified date and price. Risk arises from
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 ("FASB")
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. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133," which defers the required
implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. However, the Partnership had previously elected
to adopt the provisions of SFAS No. 133 beginning with the fiscal
year ended December 31, 1998. SFAS No. 133 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.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The net unrealized gains on open contracts are reported as a
component of "Equity in futures interests trading accounts" on
the statements of financial condition and totaled $3,854,115 and
$9,563,813 at March 31, 2000 and December 31, 1999, respectively.
Of the $3,854,115 net unrealized gain on open contracts at March
31, 2000, $3,854,344 related to exchange-traded futures and
futures-styled option contracts and $(229) related to off-
exchange-traded forward currency contracts.
The entire $9,563,813 net unrealized gain on open contracts at
December 31, 1999 related to exchange-traded futures and futures-
styled options contracts.
Exchange-traded futures and futures-styled option contracts held
by the Partnership at March 31, 2000 and December 31, 1999 mature
through December 2001. Off-exchange-traded forward currency
contracts held by the Partnership at March 31, 2000 mature
through April 2000.
The Partnership has credit risk associated with counterparty non-
performance. The credit risk associated with the instruments in
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
which the Partnership is involved is limited to the amounts
reflected in the Partnership's statements of financial condition.
The Partnership also has credit risk because 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 $87,929,910 and $107,372,141 at March 31, 2000
and December 31, 1999, 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
<PAGE>
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. The Partnership has a netting agreement
with Carr. This agreement, which seeks to reduce both the
Partnership's and Carr's exposure on off-exchange-traded forward
currency contracts, should materially decrease the Partnership's
credit risk in the event of Carr's bankruptcy or insolvency.
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).
4. Subsequent Event
Effective April 14, 2000, Willowbridge Associates Inc. was
terminated as an advisor to the Partnership. The Net Assets
previously allocated to Willowbridge Associates Inc. will
continue to earn interest on 100% of those assets and will not be
subject to fees until such Net Assets are re-allocated.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and Carr as clearing broker in separate futures
trading accounts established for each Trading Advisor, which
assets are used as margin to engage in trading. The assets are
held in either non-interest bearing bank accounts or in
securities and instruments permitted by the CFTC for investment
of customer segregated or secured funds. The Partnership's
assets held by the commodity brokers may be used as margin solely
for the Partnership's trading. Since the Partnership's sole
purpose is to trade in futures, forwards and options, it is
expected that the Partnership will continue to own such liquid
assets for margin purposes.
The Partnership's investment in futures, forwards and options
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be
taken nor liquidated unless traders are willing to effect trades
at or within the limit. Futures prices have occasionally moved
the daily limit for several consecutive days with little or no
<PAGE>
trading. These market conditions could prevent the Partnership
from promptly liquidating its futures or options contracts and
result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign 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 prevent the Partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources - The Partnership does not have, or expect to
have, any capital assets. Redemptions, exchanges and sales of
additional units of limited partnership interest ("Unit(s)") in
the future will affect the amount of funds available for
investments in futures interests in subsequent periods. It is
not possible to estimate the amount and therefore, the impact of
future redemptions of Units.
<PAGE>
Results of Operations
General. The Partnership's results depend on its Trading
Advisors and the ability of the Trading Advisors' trading
programs to take advantage of price movements or other profit
opportunities in the futures, forwards, and options markets. The
following presents a summary of the Partnership's operations for
the three months ended March 31, 2000 and 1999, respectively and
a general discussion of its trading activities during each
period. It is important to note, however, that the Trading
Advisors trade in various markets at different times and that
prior activity in a particular market does not mean that such
market will be actively traded by the Trading Advisors or will be
profitable in the future. Consequently, the results of operations
of the Partnership is difficult to discuss other than in the
context of its Trading Advisors' trading activities on behalf of
the Partnership as a whole and how the Partnership has performed
in the past.
For the Quarter Ended March 31, 2000
For the quarter ended March 31, 2000, the Partnership recorded
total trading losses net of interest income of $20,337,419 and
posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 9.3% were recorded in the
global stock index futures markets from short positions in U.S.
stock index futures as domestic equity prices moved higher in
early January on fears of an interest rate hike and reports of a
major corporate merger. Additional losses were recorded during
<PAGE>
February from short positions in NASDAQ 100 Index futures as the
NASDAQ Index climbed higher on strength in computer-chip makers
and biotechnology companies. In the currency markets, losses of
approximately 8.3% were recorded primarily during January from
long positions in the euro as the value of the European common
currency weakened versus the U.S. dollar. The euro dropped below
parity with the U.S. dollar late in January, hurt by skepticism
about Europe's economic outlook and lack of public support for
the economy from European officials. During February, losses
were also recorded from long positions in the euro due to reduced
expectations for an interest rate increase. In the metals
markets, losses of approximately 6.5% were experienced from long
positions in aluminum and copper futures as prices reversed lower
earlier in February due primarily to technically based selling
and again in late February and late March, led downward by
falling prices of other base metals and the softening of oil
prices. In the global interest rate futures markets, losses of
approximately 5.0% were experienced from short positions in U.S.
Treasury bond futures as interest rates at the longer-end of the
yield curve declined during the second half of January, thus
resulting in domestic bond prices being pushed higher. During
February, losses were incurred from short positions in German
interest rate futures as prices increased following a surge in
U.S. bond prices. In soft commodities, losses of approximately
2.2% were recorded during January and February from long coffee
futures positions as coffee prices declined in the wake of
<PAGE>
forecasts for a bumper crop in Brazil. These losses were
partially offset by gains of approximately 10.4% recorded
primarily during January in the energy markets from long futures
positions in crude oil and its refined products as oil prices
increased on growing speculation that the Organization of
Petroleum Exporting Countries (OPEC) would extend production cuts
beyond the current deadline of March 2000. Additional gains were
recorded during March from short positions in crude oil futures
as prices declined after OPEC effectively restored production
levels to their year-earlier level. In the agricultural markets,
gains of approximately 0.7% were recorded primarily during March
from long positions in soybean futures as prices moved higher
amid warm, dry long-term forecasts for U.S. growing areas that
fanned fears of a drought this summer. Total expenses for the
three months ended March 31, 2000 were $3,478,187, resulting in a
net loss of $23,815,606. The value of a Unit decreased from
$15.85 at December 31, 1999 to $12.41 at March 31, 2000.
For the Quarter Ended March 31, 1999
For the quarter ended March 31, 1999, the Partnership recorded
total trading revenues including interest income of $5,848,294
and posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 7.3% were recorded primarily
during March in the energy markets from long crude oil positions
as prices climbed to their highest level since October 1, 1998.
This strong upward move in energy prices was largely attributed
<PAGE>
to confirmation of OPEC production cuts and supply concerns
caused by an explosion at a U.S. refinery. In the global
interest rate futures markets, gains of approximately 4.1% were
recorded mainly during February from short U.S. interest rate
futures positions as prices dropped in reaction to Federal
Reserve Chairman Alan Greenspan's warnings in Congressional
testimony that a strong economy could reignite inflation, thus
increasing the prospects of an interest rate hike. In the
currency markets, gains of approximately 1.5% were recorded
during January and February largely from short positions in the
euro as the value of the common European currency fell versus the
U.S. dollar. The euro's weakness against the dollar was
attributed to fears that the European Central Bank may cut
interest rates amid a recent economic slowdown in that region. A
portion of these gains was offset by losses recorded 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 in March from newly
established 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 and speculation that Japanese interest
rates may soon rise. In the global stock index futures markets,
losses of approximately 3.6% were experienced primarily during
March from short S&P 500 Index futures positions as equity prices
increased in reaction to Wall Street reaching a major milestone
<PAGE>
during mid-March, as the Dow Jones Industrial Average hit 10,000
for the first time. In soft commodities, losses of approximately
1.2% were experienced throughout a majority of the quarter
largely from long cocoa futures positions as prices hit new
contract lows during mid-February on an overabundance of
speculative sales. Total expenses for the three months ended
March 31, 1999 were $2,963,907, resulting in net income of
$2,884,387. The value of a Unit increased from $11.55 at
December 31, 1998 to $12.02 at March 31, 1999.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the euro). During a three-year transition
period, the sovereign currencies will continue to exist but only
as a fixed denomination of the euro. Conversion to the euro
prevents the Trading Advisors from trading those sovereign
currencies and thereby limits their ability to take advantage of
potential market opportunities that might otherwise have existed
had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
<PAGE>
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
<PAGE>
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are
deemed to be forward-looking statements for purposes of the safe
harbor, except for statements of historical fact.
The Partnership accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and cash
flow. Profits and losses on open positions of exchange-traded
futures interests are settled daily through variation margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Advisors is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
<PAGE>
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the Partnership's
VaR is approximately four years. The one-day 99% confidence
level of the Partnership's VaR corresponds to the negative change
in portfolio value that, based on observed market risk factors,
would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
historic reporting purposes only and is not utilized by either
<PAGE>
Demeter or the Trading Advisors in their daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of March 31, 2000 and 1999.
At March 31, 2000 and 1999, the Partnership's total
capitalization was approximately $88 million and $75 million,
respectively.
Primary Market March 31, 2000 March 31, 1999
Risk Category Value at Risk Value at Risk
Interest Rate (1.00)% (1.97)%
Currency (0.95) (2.40)
Equity (0.58) (1.53)
Commodity (2.11) (0.69)
Aggregate Value at Risk (2.49)% (2.97)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
individual Market Categories listed above. Aggregate VaR will be
lower as it takes into account correlation among different
positions and categories.
<PAGE>
The table above represents the VaR of the Partnership's open
positions at March 31, 2000 and 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. Because the Partnership's only
business is the speculative trading of futures interests, the
composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
The table below supplements the 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 April 1,
1999 through March 31, 2000.
Primary Market Risk Category High Low Average
Interest Rate (1.97)% (0.52)% (1.33)%
Currency (2.98) (0.95) (1.98)
Equity (2.41) (0.58) (1.58)
Commodity (3.13) (0.69) (2.18)
Aggregate Value at Risk (4.88)% (2.49)% (3.58)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
<PAGE>
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, gives
no indication of such "risk of ruin". In addition, VaR risk
measures should be viewed in light of the methodology's
limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
<PAGE>
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
aggregate basis at March 31, 2000 and for the end of the four
quarterly reporting periods from April 1, 1999 through March 31,
2000. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage or monitor risk. There can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated above or
that such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market risk
they may represent are immaterial. The Partnership also maintains
a substantial portion (approximately 85%) of its available assets
in cash at DWR. A decline in short-term interest rates will result
in a decline in the Partnership's cash management income. This cash
flow risk is not considered material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership's market
sensitive instruments.
<PAGE>
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. The
Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Advisors
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially
from the objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk
exposures and the risk management strategies of the Partnership.
Investors must be prepared to lose all or substantially all of
their investment in the Partnership.
<PAGE>
The following were the primary trading risk exposures of the
Partnership as of March 31, 2000, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The Partnership's exposure in the interest rate
market complex was spread across the Japanese, U.S. 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
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.
<PAGE>
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, including
cross-rates - i.e., positions between two currencies other than
the U.S. dollar. For the first quarter of 2000, 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.
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 March 31, 2000, the Partnership's primary
exposure was in the Nikkei (Japan) 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.
<PAGE>
(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.
Energy. The primary market exposure in the Partnership is in the
energy sector. On March 31, 2000, 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. It is possible that volatility will
remain high and that significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in this market. Natural gas has exhibited volatility
in prices resulting from weather patterns and supply and demand
factors and is expected to continue in this choppy pattern.
Metals. The second largest market exposure at March 31, 2000 was
in the metals complex. The Partnership's metals market exposure
is to fluctuations in the price of base metals. During periods
of volatility, base metals will affect performance dramatically.
Demeter anticipates that the base metals will remain the primary
metals market exposure of the Partnership.
<PAGE>
Soft Commodities and Agriculturals. On March 31, 2000, the
Partnership had a reasonable amount of exposure in the markets
that comprise these sectors. Most of the exposure, however, was
in the coffee, soybeans and soybean related products, 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 March 31, 2000:
Foreign Currency Balances. The Partnership does not have foreign
currency balances as of March 31, 2000.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisors, separately, attempt to
manage the risk of the Partnership's open positions in essentially
the same manner in all market categories traded. Demeter attempts
to manage market exposure by diversifying the Partnership's assets
among different Trading Advisors, each of whose strategies focus on
different market sectors and trading approaches, and monitoring the
performance of the Trading Advisors daily. In addition, the
Trading Advisors establish diversification guidelines, often set in
terms of the maximum margin to be committed to positions in any one
market sector or market-sensitive instrument.
- 30 -
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash. Cash is the only Partnership investment
directed by Demeter, rather than the Trading Advisors.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On March 3, 2000, the plaintiffs in the New York action filed an
appeal of the order dismissing the consolidated complaint.
(Please refer to Legal Proceedings previously disclosed in the
Partnership's Form 10-K for the year ended December 31, 1999 for
a more detailed discussion).
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 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
<PAGE>
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 Partnership registered an additional 6,500,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on February 28, 2000 (SEC File Number 333-90487).
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 March 31, 2000, 10,202,100.866 Units were sold, leaving
8,797,899.134 Units unsold as of March 31, 2000. The aggregate
price of the Units sold through March 31, 2000 is $112,769,129.
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
<PAGE>
in accordance with the "Investment Programs, Use of Proceeds and
Trading Policies" section of the Prospectus included as part of
each Registration Statement.
Item 5. OTHER INFORMATION
Effective January 31, 2000, Mark J. Hawley resigned as Chairman
of the Board and a Director of Demeter and Dean Witter Futures
and Currency Management Inc. ("DWFCM") and Robert E. Murray
replaced him as Chairman of the Board of Demeter and DWFCM.
Effective April 14, 2000, Willowbridge Associates Inc. was
terminated as an advisor to the Partnership.
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)
May 12, 2000 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 84,075,566
<SECURITIES> 0
<RECEIVABLES> 1,968,442<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 90,007,051<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 90,007,051<F3>
<SALES> 0
<TOTAL-REVENUES> (20,337,419)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,478,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,815,606)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,815,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,815,606)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscription receivable of $1,648,663 and interest
receivable of $319,779.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $3,854,115 and net option
premiums of $108,928.
<F3>Liabilities include redemptions payable of $1,349,921, accrued
brokerage fees of $539,748, and accrued management fees of
$282,097.
<F4>Total revenue includes realized trading revenue of $(15,636,889), net
change in unrealized of $(5,709,698) and interest income of $1,009,168.
</FN>
</TABLE>
