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 June 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. 0-26340
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3782232
(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 GLOBAL BALANCED L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition June 30, 1999
(Unaudited) and December 31, 1998.....................2
Statements of Operations for the Quarters Ended
June 30, 1999 and 1998 (Unaudited)....................3
Statements of Operations for the Six Months Ended
June 30, 1999 and 1998 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 1999 and 1998
(Unaudited)...........................................5
Statements of Cash Flows for the Six Months Ended
June 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 ...................................21-32
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................33
Item 2. Changes in Securities and Use of Proceeds......33-34
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 GLOBAL BALANCED L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 52,301,335 43,020,361
Net unrealized gain on open contracts 456,235 1,967,187
Total Trading Equity 52,757,570 44,987,548
Subscriptions receivable 1,530,130 1,163,097
Interest receivable (DWR) 186,666 167,141
Total Assets 54,474,366 46,317,786
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 252,057 118,190
Accrued brokerage fees (DWR) 197,452 169,841
Accrued management fees 53,656 46,153
Incentive fees payable - 69,730
Total Liabilities 503,165 403,914
Partners' Capital
Limited Partners (3,302,275.499 and
2,836,946.985 Units, respectively) 53,402,008 45,399,750
General Partner (35,197.812 and
32,126.520 Units, respectively) 569,193 514,122
Total Partners' Capital 53,971,201 45,913,872
Total Liabilities and Partners' Capital 54,474,366 46,31
7,786
NET ASSET VALUE PER UNIT 16.17 16.00
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 1,607,890 584,770
Net change in unrealized (640,884) (1,116,700)
Total Trading Results 967,006 (531,930)
Interest Income (DWR) 547,069 383,259
Total Revenues 1,514,075 (148,671)
EXPENSES
Brokerage fees (DWR) 582,828 364,563
Incentive fees 215,651 -
Management fees 158,379 95,020
Total Expenses 956,858 459,583
NET INCOME (LOSS) 557,217 (608,254)
NET INCOME (LOSS) ALLOCATION
Limited Partners 551,551
(601,986)
General Partner 5,666
(6,268)
NET INCOME (LOSS) PER UNIT
Limited Partners
.19 (.31)
General Partner
.19 (.31)
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 2,609,767 1,820,696
Net change in unrealized (1,510,952) (654,063)
Total Trading Results 1,098,815 1,166,633
Interest Income (DWR) 1,045,338 727,142
Total Revenues 2,144,153 1,893,775
EXPENSES
Brokerage fees (DWR) 1,119,956 692,751
Management fees 304,338 178,742
Incentive fees 215,651 28,182
Total Expenses 1,639,945 899,675
NET INCOME 504,208 994,100
NET INCOME ALLOCATION
Limited Partners 499,137 983,818
General Partner 5,071 10,282
NET INCOME PER UNIT
Limited Partners
.17 .53
General Partner
.17 .53
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 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 1,868,284.841 $25,418,875 $264,361
$25,683,236
Continuous Offering 654,854.619 9,286,567 80,000
9,366,567
Net Income - 983,818 10,282 994,100
Redemptions (117,721.877) (1,684,379) -
(1,684,379)
Partners' Capital,
June 30, 1998 2,405,417.583 $34,004,881 $354,643
$34,359,524
Partners' Capital,
December 31, 1998 2,869,073.505 $45,399,750 $514,122
$45,913,872
Continuous Offering 585,087.342 9,382,234 50,000
9,432,234
Net Income - 499,137 5,071 504,208
Redemptions (116,687.536) (1,879,113) -
(1,879,113)
Partners' Capital,
June 30, 1999 3,337,473.311 $53,402,008 $569,193
$53,971,201
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 504,208 994,100
Noncash item included in net income:
Net change in unrealized 1,510,952 654,063
Increase in operating assets:
Interest receivable (DWR) (19,525) (16,868)
Net option premiums - (
458,150)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) 27,611 21,645
Accrued management fees 7,503
7,541
Incentive fees payable (69,730)
- -
Net cash provided by operating activities 1,961,019
1,202,331
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 9,432,234 9
,366,567
Increase in subscriptions receivable(367,033)
(2,215,477)
Increase in redemptions payable 133,867 46,569
Redemptions of units (1,879,113)
(1,684,379)
Net cash provided by financing activities 7,319,955
5,513,280
Net increase in cash 9,280,974 6
,715,611
Balance at beginning of period 43,020,361 2
4,954,956
Balance at end of period 52,301,335 3
1,670,567
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED 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 Global Balanced 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 Global Balanced L.P. is a
limited partnership organized to engage primarily in the
speculative trading of futures and forward contracts, options on
futures contracts and 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
Strategic 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.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
("Carr"), provides clearing and execution services. Both Demeter
and DWR are wholly-owned subsidiaries of Morgan Stanley Dean
Witter & Co. ("MSDW"). RXR, Inc. (the "Trading Advisor"), is the
trading advisor to the Partnership.
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 and forward contracts, options on
futures contracts and 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 GLOBAL BALANCED 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 $456,235 and
$1,967,187 at June 30, 1999 and December 31, 1998, respectively.
Of the $456,235 net unrealized gain on open contracts at June 30,
1999, $516,531 related to exchange-traded futures contracts and
$(60,296) related to off-exchange-traded forward currency
contracts.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Of the $1,967,187 net unrealized gain on open contracts at
December 31, 1998, $2,044,752 related to exchange-traded futures
contracts and $(77,565) related to off-exchange-traded forward
currency contracts.
Exchange-traded futures contracts held by the Partnership at June
30, 1999 and December 31, 1998 mature through December 1999 and
March 1999, respectively. Off-exchange-traded forward currency
contracts held by the Partnership at June 30, 1999 and December
31, 1998 mature through September 1999 and March 1999,
respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial 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
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
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 $52,817,866 and
$45,065,113 at June 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 Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $1,514,075
and posted an increase in Net Asset Value per Unit. The most
significant gains were recorded during April and May in the stock
index component of the balanced portfolio from long German stock
index futures positions as prices increased in reaction to record
high closes for Wall Street and helped further by robust
performance in Tokyo. Additional gains were recorded during June
as German equity prices increased fuelled by Japan's Nikkei
<PAGE>
closing at its strongest level since October 1997. In the fixed
income component, gains were recorded during June from short
positions in European interest rate futures, particularly Spanish
bond futures, as prices declined due to dampened sentiment
regarding the European Monetary Union and fears of an interest
rate hike in the U.S. These gains were partially offset by
losses recorded in the metals markets from long positions in
nickel and copper futures as base metals prices declined
significantly in late May amid a large supply, low demand and the
possibility of a production cut in the near future being judged
unlikely. During June, additional losses were incurred in this
market complex from short copper futures positions as prices
moved higher due to a drop in warehouse stocks. In the currency
markets, losses were experienced from previously established
short positions in the Singapore dollar as its value increased
versus the U.S. dollar during mid-June due to the short-lived
strength in the Japanese yen. In the agricultural markets,
losses were recorded from long corn futures positions as prices
regressed in early April in reaction to reports by the USDA that
the expected corn surplus will be one of the biggest in years and
from declining demand from Asian markets. Later in April corn
prices fell due to aggressive selling by commodity investment
funds amid technical factors and on reports of favorable planting
conditions. Total expenses for the three months ended June 30,
1999 were $956,858, resulting in net income of $557,217. The
value of a Unit increased from $15.98 at March 31, 1999 to $16.17
at June 30, 1999.
<PAGE>
For the six months ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $2,144,153
and posted an increase in Net Asset Value per Unit. The most
significant gains were recorded in the stock index component from
long S&P 500 Index futures positions during January and March as
domestic equity prices increased in reaction to Wall Street
reaching a major milestone during March, as the Dow Jones
Industrial Average hit 10,000 for the first time. During early
April, additional profits were recorded as the S&P 500 Index
reached record highs in response to an interest rate cut by the
European Central Bank aimed at boosting their region's economy,
strong sales at domestic retailers and optimism about earnings
from financial services companies. During late June, domestic
stocks received another boost as investors sensed that Wall
Street's fears the Federal Reserve would launch a big rise in
interest rates were over-blown. In the energy markets, gains
were recorded during March from long positions in crude and gas
oil futures as prices moved significantly higher due largely to
the news that both OPEC and non-OPEC countries had reached an
agreement to cut total output by approximately two million
barrels a day beginning April 1st. In the currency markets,
gains were recorded throughout a majority of the first half of
the year from short positions in the Swiss franc and the European
common currency, the euro, as the value of these currencies
weakened versus the U.S. dollar despite NATO's suspension of
bombing and the subsequent withdrawal of Serbian forces from
Kosovo. The dollar gained ground against the euro and franc as
investors bought dollars after tame U.S. inflation data eased
<PAGE>
fears that the Federal Reserve was about to embark on a series of
rate hikes to head off spiraling inflation. These gains were
partially offset by losses experienced in the metals markets from
short copper futures positions as prices moved significantly
higher in late March in response to a decline in warehouse
stocks. Additional losses were recorded during May from long
positions in nickel and copper futures as base metal prices fell
amid a technical sell-off and during June from short positions in
copper futures as prices increased due to a drop in warehouse
stocks. In the fixed income component, losses were recorded
during February, April and May from long U.S. interest rate
futures positions as prices dropped in reaction to Federal
Reserve Chairman Alan Greenspan's warnings in Congressional
testimony in late February that a strong economy could reignite
inflation. Fears that the Federal Reserve eventually could boost
target interest rates pushed down domestic bond prices during the
first and second quarters and forced yields higher. Reactions to
a higher-than-expected rise in the Consumer Price Index and
comments by Federal Reserve Chairman Alan Greenspan that
continued economic expansion in the U.S. without significant
signs of inflation also pushed domestic bond prices lower. Total
expenses for the six months ended June 30, 1999 were $1,639,945,
resulting in net income of $504,208. The value of a Unit
increased from $16.00 at December 31, 1998 to $16.17 at June 30,
1999.
For the Quarter and Six Months Ended June 30, 1998
For the quarter ended June 30, 1998, the Partnership recorded
<PAGE>
total trading losses net of interest income of $148,671 and
posted a decrease in Net Asset Value per Unit. The most
significant losses were recorded in the global bond futures
component of the balanced portfolio from long positions in
Australian bond futures as prices moved lower during April and
June. In currencies, losses were recorded during April and June
from crossrate transactions involving the Japanese yen relative
to the Australian dollar as the value of Pacific Rim currencies
moved in a short-term volatile pattern in reaction to the
economic instability in that region. Additional currency losses
were recorded from short Singapore dollar positions as its value
moved higher relative to the U.S. dollar during June. These
losses were partially offset by gains from short nickel futures
positions as nickel prices declined during June. Additional
gains recorded during June from short positions in crude oil
futures and long positions in cotton futures helped to offset the
Partnership's overall losses. Trading in the stock index futures
component was relatively flat for the quarter as gains recorded
from long S&P 500 Index futures positions during April and June
offset losses recorded in this same market during May. Total
expenses for the three months ended June 30, 1998 were $459,583,
resulting in a net loss of $608,254. The value of a Unit
decreased from $14.59 at March 31, 1998 to $14.28 at June 30,
1998.
For the six months ended June 30, 1998, the Partnership recorded
total trading revenues including interest income of $1,893,775
and posted an increase in Net Asset Value per Unit. The most
<PAGE>
significant gains were recorded from long S&P 500 Index futures
positions in the stock index portion of the balanced portfolio as
domestic stock prices climbed to record highs during the first
quarter. Additional gains were recorded in the managed futures
component from short crude oil futures positions during January
and February, as oil prices declined on news of a tentative
agreement between the U.N. and Iraq. Short crude oil futures
positions also proved profitable during June as oil prices
declined following a move up higher in March and April. Smaller
gains were recorded from short nickel futures positions as nickel
prices moved lower during June and from trading livestock futures
during February. A portion of the Partnership's overall gains
for the first half of the year was offset by losses experienced
in the global bond futures component of the balanced portfolio
from long positions in Australian bond futures as prices moved
lower during April and June. Losses were also experienced in the
currency markets from crossrate transactions involving the
Japanese yen relative to the Australian dollar during April and
June. Smaller currency losses were recorded from short Singapore
dollar positions as its value moved higher relative to the U.S.
dollar during June. Total expenses for the six months ended June
30, 1998 were $899,675, resulting in net income of $994,100. The
value of a Unit increased from $13.75 at December 31, 1997 to
$14.28 at June 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
<PAGE>
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter.
It has developed its own Year 2000 compliance plan to deal with
the problem and had the plan approved by the company's executive
management, Board of Directors and Information Technology
Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that
affect the Partnership. This includes hardware and software
upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or the
Trading Advisor - could result in a material financial risk to
the Partnership. All U.S. futures exchanges are subject to
monitoring by the CFTC of their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject
<PAGE>
to market-wide testing of their Year 2000 compliance during 1999.
Demeter intends to monitor the progress of Carr and the Trading
Advisor throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Advisor.
A worst case scenario would be one in which trading of contracts
on behalf of the Partnership becomes impossible as a result of
the Year 2000 problem encountered by any third parties. A less
catastrophic but more likely scenario would be one in which
trading opportunities diminish as a result of technical problems
resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun 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 Advisor from trading in certain
currencies and thereby limits its ability to take advantage of
<PAGE>
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
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
<PAGE>
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the
Partnership's market risk must be qualified by the inherent
uncertainty of its speculative trading, which may cause future
losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
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,
<PAGE>
and the Partnership's cash flow, as profits and losses on open
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisor is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading 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
<PAGE>
and systems capabilities improve. It must also be noted that the
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading Advisor in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by market category as of June 30, 1999. As of June 30, 1999, the
Partnership's total capitalization was approximately $54 million.
Primary Market June 30, 1999
Risk Category Value at Risk
Interest Rate (0.59)%
Equity (1.03)
Currency (0.53)
Commodity (0.26)
Aggregate Value at Risk (1.38)%
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 June 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
<PAGE>
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.
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 July 1,
1998 through June 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (1.36)% (0.58)% (0.82)%
Equity (1.74) (0.80) (1.15)
Currency (0.53) (0.26) (0.43)
Commodity (0.32) (0.19) (0.26)
Aggregate Value at Risk (1.70)% (1.38)% (1.49)%
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
<PAGE>
losses greatly in excess of VaR within a short period of time. The
foregoing VaR tables, as well as the past performance of the
Partnership, gives no indication of such "risk of ruin". In
addition, VaR risk measures should be interpreted in light of the
methodology's limitations, which include the following: past
changes in market risk factors will not always yield accurate
predictions of the distributions and correlations of future market
movements; changes in portfolio value in response to market
movements may differ from the responses implicit in a VaR model;
published VaR results reflect past trading positions while future
risk depends on future positions; VaR using a one-day time horizon
does not fully capture the market risk of positions that cannot be
liquidated or hedged within one day; and the historical market risk
factor data used for VaR estimation may provide only limited
insight into losses that could be incurred under certain unusual
market movements.
The foregoing VaR tables present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at June 30, 1999 and for the end of the four
quarterly reporting periods from July 1, 1998 through June 30,
1999. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage and monitor risk and there can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
<PAGE>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well as
any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
90%) of its available assets in cash at DWR. A decline in short-
term interest rates will result in a decline in the Partnership's
cash management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account the
leverage, optionality and multiplier features of the Partnership's
market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. The
Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Advisor
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially
from the objectives of such strategies. Government interventions,
<PAGE>
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of June 30, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The primary trading risk market exposure in
the Partnership is in the interest rate sector. Exposure was
spread across the U.S., European, Japanese, Spanish, and
Australian interest rate sectors at June 30, 1999. Interest rate
movements directly affect the price of the sovereign bond futures
positions held by the Partnership and indirectly affect the value
of its stock index and currency positions. Interest rate
movements in one country as well as relative interest rate
movements between countries materially impact the Partnership's
profitability. The Partnership's primary interest rate exposure
is generally to interest rate fluctuations in the United States
and the other G-7 countries. However, the Partnership also takes
futures positions in the government debt of smaller nations -
e.g. Australia and Spain. Demeter anticipates that G-7 and
<PAGE>
Australian interest rates will remain the primary interest rate
exposure of the Partnership for the foreseeable future. The
changes in interest rates, which have the most effect on the
Partnership, are changes in long-term, as opposed to short-term,
rates. Most of the speculative futures positions held by the
Partnership are in medium-to-long term instruments.
Consequently, even a material change in short-term rates would
have little effect on the Partnership, were the medium-to-long
term rates to remain steady.
Equity. The second largest market exposure this quarter
was in the stock index complex. 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 June 30, 1999, the Partnership's
primary exposures were in the DAX (German), Nikkei (Japan) and
S&P 500 (U.S.) stock indices. The Partnership is primarily
exposed to the risk of adverse price trends or static markets in
the U.S., European and Japanese indices. (Static markets would
not cause major market changes but would make it difficult for
the Partnership to avoid being "whipsawed" into numerous small
losses).
Currency. The 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
<PAGE>
cross-rates - i.e., positions between two currencies other than
the U.S. dollar. For the second quarter of 1999, the
Partnership's major exposures were in the euro currency crosses
and outright U.S. dollar positions. (Outright positions consist
of the U.S. dollar vs. other currencies. These other currencies
include the major and minor currencies). Demeter does not
anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future. The currency
trading VaR figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the dollar-based Partnership in
expressing VaR in a functional currency other than dollars.
Commodity.
Soft Commodities and Agriculturals. On June 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 sugar, corn and soybean markets. Supply and demand
inequalities, severe weather disruption and market expectations
affect price movements in these markets.
Energy. On June 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 broken out of low
price ranges achieved in 1998, it is possible that volatility
will increase as well. Significant profits and losses have been
<PAGE> 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 this choppy pattern.
Metals. The Partnership's metals market exposure is to
fluctuations in the price of base and precious metals. The
Partnership aims to equally weight market exposure in metals as
much as possible, however base metals, during period of
volatility, will affect performance more dramatically than the
precious metals markets. Demeter anticipates that the base
metals will remain the primary metals market exposure of the
Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of June 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in Mexican pesos, Swiss francs and
Singapore dollars. The Partnership controls the non-trading risk
of these balances by regularly converting these balances back
into dollars upon liquidation of the respective position.
<PAGE>
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor,
severally, attempt to manage the risk of the Partnership's open
positions are essentially the same in all market categories traded.
Demeter attempts to manage the Partnership's market exposure by (i)
diversifying the Partnership's assets among different market
sectors and trading approaches, and (ii), monitoring the
performance of the Trading Advisor on a daily basis. In addition,
the Trading Advisor establishes diversification guidelines, often
set in terms of the maximum margin to be committed to positions in
any one market sector or market sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash, which is the only Partnership investment
directed by Demeter, rather than the Trading Advisor.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's 1998 Form 10-K:
With respect to the plaintiff's consolidated action in
California, on July 1, 1999, the Superior Court of the State of
California, ruling from the bench, denied the plaintiffs' motion
to have their lawsuit certified as a class action, stating, among
other things, that plaintiffs' lawsuit did not present common
questions of fact.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership, Morgan Stanley Dean Witter Spectrum Strategic L.P.
("Spectrum Strategic") and Morgan Stanley Dean Witter Spectrum
Technical L.P. ("Spectrum Technical"), collectively registered
10,000,000 Units of Limited Partnership Interest 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 among the Partnership, Spectrum Strategic and
Spectrum Technical at that time, they were subsequently allocated
for convenience purposes as follows: Spectrum Strategic 4,000,000,
Spectrum Technical 4,000,000 and the Partnership 2,000,000. The
Partnership, Spectrum Strategic and Spectrum Technical 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 as follows: Spectrum Strategic 6,000,000, Spectrum
Technical 9,000,000 and the Partnership 5,000,000. The
Partnership,
<PAGE>
Spectrum Strategic and Spectrum Technical 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 as follows:
Spectrum Strategic 2,500,000, Spectrum Technical 5,000,000 and the
Partnership 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 June 30, 1999, 4,150,879.100 Units were sold, leaving
3,849,120.900 Units unsold as of June 30, 1999. The aggregate
price of the Units sold through June 30, 1999 is $53,898,378.
Since DWR has paid all offering 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
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
Global Balanced L.P.
(Registrant)
By: Demeter Management Corporation
(General Partner)
August 13, 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 Global Balanced L.P. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 52,301,335
<SECURITIES> 0
<RECEIVABLES> 1,716,796<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,474,366<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 54,474,366<F3>
<SALES> 0
<TOTAL-REVENUES> 2,144,153<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,639,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 504,208
<INCOME-TAX> 0
<INCOME-CONTINUING> 504,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504,208
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscriptions receivable of $1,530,130 and
interest receivable of $186,666.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $456,235.
<F3>Liabilities include redemptions payable of $252,057, accrued
brokerage fees of $197,452, and accrued management fees of $53,656.
<F4>Total revenues include realized trading revenue of $2,609,767,
net change in unrealized of $(1,510,952) and interest income of
$1,045,338.
</FN>
</TABLE>
