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 period ended March 31, 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
Dean Witter Spectrum Global Balanced L.P.
(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
March 31, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition March 31, 1999
(Unaudited) and December 31, 1998.....................2
Statements of Operations for the Quarters Ended
March 31, 1999 and 1998 (Unaudited)...................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1999 and 1998
(Unaudited)...........................................4
Statements of Cash Flows for the Quarters Ended
March 31, 1999 and 1998 (Unaudited)...................5
Notes to Financial Statements (Unaudited)..........6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..11-17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . .17-28
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................29
Item 2. Changes in Securities and Use of Proceeds......29-30
Item 6. Exhibits and Reports on Form 8-K..................30
</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>
March 31, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 46,411,540 43,020,361
Net unrealized gain on open contracts 1,097,119 1,967,187
Total Trading Equity 47,508,659 44,987,548
Subscriptions receivable 1,226,996 1,163,097
Interest receivable (DWR) 172,832 167,141
Total Assets 48,908,487 46,317,786
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 319,295 118,190
Accrued brokerage fees (DWR) 181,812 169,841
Accrued management fees 49,406 46,153
Incentive fee payable - 69,730
Total Liabilities 550,513 403,914
Partners' Capital
Limited Partners (2,993,176.553 and
2,836,946.985 Units, respectively) 47,844,447 45,399,750
General Partner (32,126.520 Units) 513,527 514,122
Total Partners' Capital 48,357,974 45,913,872
Total Liabilities and Partners' Capital 48,908,487 46,3
17,786
NET ASSET VALUE PER UNIT 15.98 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 March 31,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 1,001,877 1,235,926
Net change in unrealized (870,068) 462,637
Total Trading Results 131,809 1,698,563
Interest Income (DWR) 498,269 343,883
Total Revenues 630,078 2,042,446
EXPENSES
Brokerage fees (DWR) 537,128 328,188
Management fees 145,959 83,722
Incentive fees - 28,182
Total Expenses 683,087 440,092
NET INCOME (LOSS) (53,009) 1,602,354
NET INCOME (LOSS) ALLOCATION
Limited Partners (52,414) 1,585,804
General Partner (595) 16,550
NET INCOME (LOSS) PER UNIT
Limited Partners (.02)
.84
General Partner
(.02) .84
<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 Quarters Ended March 31, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C>
<C> <C>
Partners' Capital,
December 31, 19971,868,284.841 $25,418,875 $264,361
$25,683,236
Offering of Units 201,687.882 2,868,400 20,000
2,888,400
Net income - 1,585,804 16,550
1,602,354
Redemptions (71,776.112) (1,027,511) -
(1,027,511)
Partners' Capital,
March 31, 1998 1,998,196.611 $28,845,568 $300,911
$29,146,479
Partners' Capital,
December 31, 1998 2,869,073.505 $45,399,750 $514,122
$45,913,872
Offering of Units 219,471.601 3,507,842 -
3,507,842
Net loss - (52,414) (595) (53,009)
Redemptions (63,242.033) (1,010,731) -
(1,010,731)
Partners' Capital,
March 31, 1999 3,025,303.073 $47,844,447 $513,527
$48,357,974
<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 Quarters Ended March 31,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (53,009) 1
,602,354 Noncash
item included in net income (loss):
Net change in unrealized 870,068 (
462,637)
(Increase) decrease in operating assets:
Interest receivable (DWR) (5,691) 1,124
Net option premiums - (
458,150)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) 11,971 13,573
Accrued management fees 3,253 3,462
Incentive fee payable (69,730)
28,182
Net cash provided by operating activities 756,862
727,908
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units 3,507,842 2
,888,400
Increase in subscriptions receivable (63,899) (
498,015)
Increase in redemptions payable 201,105 239,842
Redemptions of units (1,010,731)
(1,027,511)
Net cash provided by financing activities 2,634,317
1,602,716
Net increase in cash 3,391,179 2
,330,624
Balance at beginning of period 43,020,361
24,954,956
Balance at end of period 46,411,540 2
7,285,580
<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. (formerly, 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 in the speculative
trading of futures contracts, forward contracts and options on
futures contracts on physical commodities and other commodities
interests, including foreign currencies, financial instruments,
precious and industrial metals, energy products and agriculturals
(collectively, "futures interests"). The Partnership is one of
the 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. The Partnership name change
reflected in this report became effective on April 6, 1999.
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 contracts, forward contracts and
options on futures contracts on physical commodities and other
commodities 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 has 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.
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 $1,097,119 and
$1,967,187 at March 31, 1999 and December 31, 1998, respectively.
Of the $1,097,119 net unrealized gain on open contracts at March
31, 1999, $1,132,441 related to exchange-traded futures contracts
and $(35,322) 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
March 31, 1999 and December 31, 1998 mature through July 1999 and
March 1999, respectively. Off-exchange-traded forward currency
contracts held by the Partnership at March 31, 1999 and December
31, 1998 mature through June 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 the sole benefit of their commodity customers,
all funds held by
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
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 $47,543,981 and
$45,065,113 at March 31, 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 Ended March 31, 1999
For the quarter ended March 31, 1999, the Partnership recorded
total trading revenues including interest income of $630,078 and
posted a decrease in Net Asset Value per Unit. The most
significant losses were recorded in the global interest rate
futures markets during January and March from short Australian
interest rate futures positions as prices moved higher due to
depressed gold prices during late March which weakened the
Australian dollar, and to a lesser extent, Australian stock
prices. In the livestock markets, losses were experienced in
<PAGE>
January from short positions in hog and cattle futures as prices
in both markets moved sharply higher on concerns that winter
storms would hurt supplies, on reports of an increase in demand
and plans for government aid programs to help struggling farmers.
In soft commodities, losses were recorded during March from short
cotton futures positions as prices increased to their highest
level since mid-December on technically motivated speculative
buying and rumors that an influential merchant turned bullish
early in March. In the metals markets, losses were experienced
from short copper futures positions as prices moved significantly
higher towards the end of March in response to a decline in LME
warehouse stocks and evidence that Japanese consumption has
stabilized. These losses were partially offset by gains recorded
during January and March in the global stock index futures
component from long Nikkei Index futures positions as Japanese
equity prices were pushed higher by positive economic factors in
Japan such as low interest rates, an easing credit stance,
relatively stable exchange rates and an agreement to inject
public funds into the indebted banking sector. In the currency
markets, gains were recorded throughout a majority of the quarter
from short euro positions as the value of the U.S. dollar hit new
highs during March versus the European common currency on the
strength of the U.S. economy, concerns pertaining to the economic
health of Europe and Japan and growing uncertainty about the
military action in Yugoslavia. In the energy markets, gains were
recorded during March from long positions in crude and gas oil
futures as prices moved significantly higher which was largely
attributed to the news that both OPEC and non-OPEC countries had
<PAGE>
reached an agreement to cut total output by approximately two
million barrels a day beginning April 1st. In the agricultural
markets, gains were recorded in January and February from short
soybean oil futures positions as prices declined to 23-year lows
in reaction to a healthy South American crop outlook, weak world
demand and fears that Brazil will flood the market in an effort
to support their ailing economy. Total expenses for the three
months ended March 31, 1999 were $683,087, resulting in a net
loss of $53,009. The value of a Unit decreased from $16.00 at
December 31, 1998 to $15.98 at March 31, 1999.
For the Quarter Ended March 31, 1998
For the quarter ended March 31, 1998, the Partnership recorded
total trading revenues including interest income of $2,042,446
and posted an increase in Net Asset Value per Unit. The most
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
three months of 1998. Additional gains were recorded in the
managed futures component from long European bond futures
positions, particularly German and French bond futures, as prices
in these markets trended higher during a majority of the quarter.
In energy futures trading, profits were recorded 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. Smaller gains were recorded from livestock futures trading
during February. In the bond portion of the balanced portfolio,
<PAGE>
small gains were recorded from long U.S. Treasury note futures
positions as prices finished the quarter slightly higher. These
gains were partially offset by losses experienced from short
cotton futures as cotton prices increased during March after
moving lower previously. Smaller losses were recorded in
currencies as the value of the Japanese yen moved in a short-term
volatile pattern during February. Total expenses for the three
months ended March 31, 1998 were $440,092, resulting in net
income of $1,602,354. The value of a Unit increased from $13.75
at December 31, 1997 to $14.59 at March 31, 1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the 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
<PAGE>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
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
<PAGE>
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
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
<PAGE>
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned factors result in frequent changes
in the fair value of the Partnership's open positions, and,
consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification effects among
the Partnership's existing open positions, the volatility present
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the
Partnership's market risk must be qualified by the inherent
uncertainty of its speculative trading, which may cause future
losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
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
<PAGE>
Section 21E of the Securities Exchange Act of 1934). All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.
The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
and the Partnership's cash flow, as profits and losses on open
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisor is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading 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
<PAGE>
observed percentage changes in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The
Partnership's one-day 99% VaR corresponds to the negative change
in portfolio value that, based on observed market risk factor
moves, would have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading Advisor in their daily risk management activities.
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 March 31, 1999. As of March 31, 1999,
the Partnership's total capitalization was approximately $48
million.
Primary Market March 31, 1999
Risk Category Value at Risk
Interest Rate (0.76)%
Currency (0.47)
Equity (1.02)
Commodity (0.32)
Aggregate Value at Risk (1.38)%
<PAGE>
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 March 31, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole business
is the speculative trading of primarily futures interests, the
composition of its portfolio of open positions can change
significantly over any given time period or even within a single
trading day. Such changes in open positions could materially
impact market risk as measured by VaR either positively or
negatively.
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,
1998 through March 31, 1999.
Primary Market Risk Category High Low Average
Interest Rate (1.36)% (0.58)% (0.99)%
Currency (0.47) (0.18) (0.34)
Equity (1.74) (0.59) (1.04)
Commodity (0.32) (0.19) (0.25)
Aggregate Value at Risk (1.70)% (1.38)% (1.50)%
<PAGE>
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin require-
ments, as such margin requirements generally range between 2% and
15% of contract face value. Additionally, due to the use of
leverage, the face value of the market sector instruments held by
the Partnership is typically many times the total capitalization of
the Partnership. The financial magnitude of the Partnership's open
positions thus creates a "risk of ruin" not typically found in
other investment vehicles. Due to the relative size of the
positions held, certain market conditions may cause the Partnership
to incur losses greatly in excess of VaR within a short period of
time. The foregoing VaR tables, as well as the past performance of
the Partnership, gives no indication of such "risk of ruin". In
addition, VaR risk measures should be interpreted in light of the
methodology's limitations, which include the following: past
changes in market risk factors will not always yield accurate
predictions of 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.
<PAGE>
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 March 31, 1999 and for the end of the four
quarterly reporting periods from April 1, 1998 through March 31,
1999. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage and monitor risk and there can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well as
any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
91%) 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
<PAGE>
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. The
Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Advisor
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially
from the objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of March 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. Interest rate risk is the principal market
exposure of the Partnership. Interest rate movements directly
<PAGE>
affect the price of the sovereign bond futures positions held by
the Partnership and indirectly the value of its stock index and
currency positions. Interest rate movements in one country as well
as relative interest rate movements between countries materially
impact the Partnership's profitability. The Partnership's primary
interest rate exposure is to interest rate fluctuations in the
United States and the other G-7 countries. However, the
Partnership also takes futures positions in the government debt of
smaller nations - e.g. Australia and Spain. Demeter anticipates
that G-7 interest rates will remain the primary market exposure of
the Partnership for the foreseeable future. The changes in
interest rates which have the most effect on the Partnership are
changes in long-term, as opposed to short-term, rates. Most of the
speculative future positions held by the Partnership are in medium-
to-long term instruments. Consequently, even a material change in
short-term rates would have little effect on the Partnership were
the medium-to-long term rates to remain steady.
Currency. The Partnership's currency exposure is to exchange
rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and
currency pairs. These fluctuations are influenced by interest rate
changes as well as political and general economic conditions. The
Partnership trades in a large number of currencies, including cross-
rates - i.e., positions between two currencies other than the U.S.
dollar. However, the Partnership's major exposures have typically
been in the dollar/yen, dollar/mark, dollar/euro and dollar/pound
positions. Demeter does not anticipate that the risk profile of
the
<PAGE>
Partnership's currency sector will change significantly in the
future, although it is difficult at this point to predict the
effect of the introduction of the Euro on the Trading Advisor's
currency trading strategies.
Equity. The Partnership's primary equity exposure is to
equity price risk in the G-7 countries. The stock index futures
traded by the Partnership are by law limited to futures on broadly
based indices. As of March 31, 1999, the Partnership's primary
exposures were in the S&P 500, DAX (Germany), Financial Times
(England), and Nikkei (Japan) stock indices. Demeter anticipates
little, if any, trading in non-G-7 stock indices. The Partnership
is primarily exposed to the risk of adverse price trends or static
markets in the major U.S., European and Japanese indices. (Static
markets would not cause major market changes but would make it
difficult for the Partnership to avoid being "whipsawed" into
numerous small losses).
Commodity.
Metals. The Partnership's primary metals market exposure is
to fluctuations in the price of nickel, copper and zinc.
Softs and Agriculturals. The Partnership's primary commodities
exposure is to fluctuations in the price of soft commodities and
agriculturals which are often directly affected by severe or
unexpected weather conditions. Corn, wheat and sugar accounted for
the substantial bulk of the Partnership's commodities exposure at
March 31, 1999. The Partnership also had market exposure to live
cattle and lean hogs at March 31, 1999. However, Demeter
anticipates that the Trading Advisor will maintain an emphasis on
<PAGE>
corn, wheat and sugar, in which the Partnership has historically
taken it's largest positions.
Energy. The Partnership's primary energy market exposure is
to gas and oil price movements, often resulting from political
developments in the Middle East. Although the Trading Advisor
trades natural gas to a limited extent, oil is by far the dominant
energy market exposure of the Partnership. Oil prices are
currently depressed, but they can be volatile and substantial
profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at March 31, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros, Mexican pesos, Swiss francs,
Singapore dollars, and Japanese yen. The Partnership controls the
non-trading risk of these balances by regularly converting these
balances back into U.S. dollars at varying intervals, depending
upon such factors as size, volatility, etc.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor,
severally, attempt to manage the risk of the Partnership's open
positions are 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
<PAGE>
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 Item 3. of the Partnership's 1998 Form 10-K:
On April 12, 1999, the defendants filed a motion in the
California action to oppose certification by the court of the
class in the California litigation.
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") 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, Spectrum Strategic and
Spectrum Technical collectively registered an additional 8,500,000
Units
<PAGE>
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 Spectrum Series 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, 1999, 3,788,334.651 Units were sold, leaving
4,211,665.349 Units unsold as of March 31, 1999. The aggregate
price of the Units sold through March 31, 1999 is $48,023,985.
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)
May 12, 1999 By:/s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and Chief Financial
Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Morgan
Stanley Dean Witter Spectrum Global Balanced 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 46,411,540
<SECURITIES> 0
<RECEIVABLES> 1,399,828<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,908,487<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,908,487<F3>
<SALES> 0
<TOTAL-REVENUES> 630,078<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 683,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (53,009)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,009)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscriptions receivable of $1,226,996 and
interest receivable of $172,832.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $1,097,119.
<F3>Liabilities include redemptions payable of $319,295, accrued
brokerage fees of $181,812, and accrued management fees of $49,406.
<F4>Total revenue includes realized trading revenue of $1,001,877,
net change in unrealized of $(870,068) and interest income of
$498,269.
</FN>
</TABLE>
