UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-26340
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
September 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition September 30, 1999
(Unaudited) and December 31, 1998.....................2
Statements of Operations for the Quarters Ended
September 30, 1999 and 1998 (Unaudited)...............3
Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)...............4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited)...........................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)...............6
Notes to Financial Statements (Unaudited)..........7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..12-22
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ...................................22-33
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................34
Item 2. Changes in Securities and Use of Proceeds......34-35
Item 6. Exhibits and Reports on Form 8-K................ 36
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 54,751,160 43,020,361
Net unrealized gain on open contracts 117,115 1,96
7,187
Total Trading Equity 54,868,275 44,987,548
Subscriptions receivable 1,224,600 1,163,097
Interest receivable (DWR) 218,974 167,141
Total Assets 56,311,849 46,317,786
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 379,450 118,190
Accrued brokerage fees (DWR) 211,186 169,841
Accrued management fees 57,388 46,153
Incentive fees payable - 69,730
Total Liabilities 648,024 403,914
Partners' Capital
Limited Partners (3,488,043.117 and
2,836,946.985 Units, respectively) 55,068,413 45,399,750
General Partner (37,713.535 and
32,126.520 Units, respectively) 595,412 514,122
Total Partners' Capital 55,663,825 45,913,872
Total Liabilities and Partners' Capital 56,311,849 46,317,786
NET ASSET VALUE PER UNIT 15.79 16.00
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (795,642) (443,833)
Net change in unrealized (339,120) 3,076,158
Total Trading Results (1,134,762) 2,632,325
Interest Income (DWR) 637,615 441,782
Total Revenues (497,147) 3,074,107
EXPENSES
Brokerage fees (DWR) 626,181 412,473
Management fees 170,160 112,088
Incentive fees - 124,258
Total Expenses 796,341 648,819
NET INCOME (LOSS) (1,293,488) 2,425,288
NET INCOME (LOSS) ALLOCATION
Limited Partners (1,279,707)
2,398,826
General Partner (13,781)
26,462
NET INCOME (LOSS) PER UNIT
Limited Partners (0.38)
.93
General Partner
(0.38)
.93
<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 Nine Months Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 1,814,125 1,376,863
Net change in unrealized (1,850,072) 2,422,095
Total Trading Results (35,947) 3,798,958
Interest Income (DWR) 1,682,953 1,168,924
Total Revenues 1,647,006 4,967,882
EXPENSES
Brokerage fees (DWR) 1,746,137 1,105,224
Management fees 474,498 290,828
Incentive fees 215,651 152,442
Total Expenses 2,436,286 1,548,494
NET INCOME (LOSS) (789,280) 3,419,388
NET INCOME (LOSS) ALLOCATION
Limited Partners (780,570)
3,382,644
General Partner
(8,710) 36,744
NET INCOME (LOSS) PER UNIT
Limited Partners (0.21)
1.46
General Partner
(0.21)
1.46
<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 Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C>
<C> <C>
Partners' Capital,
December 31, 1997 1,868,284.841 $25,418,875 $264,361
$25,683,236
Continuous Offering 965,847.145 13,746,040 130,000
13,876,040
Net Income - 3,382,644 36,744
3,419,388
Redemptions (174,785.709) (2,519,126) -
(2,519,126)
Partners' Capital,
September 30, 19982,659,346.277 $40,028,433 $431,105
$40,459,538
Partners' Capital,
December 31, 1998 2,869,073.505 $45,399,750 $514,122
$45,913,872
Continuous Offering 841,624.874 13,410,326 90,000
13,500,326
Net Loss - (780,570) (8,710) (789,280)
Redemptions (184,941.727) (2,961,093) -
(2,961,093)
Partners' Capital,
September 30, 19993,525,756.652 $55,068,413 $595,412
$55,663,825
<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 Nine Months Ended September 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S>
<C> <C>
Net income (loss) (789,280) 3
,419,388
Noncash item included in net income (loss):
Net change in unrealized 1,850,072 (
2,422,095)
Increase in operating assets:
Interest receivable (DWR) (51,833) (33,309)
Net option premiums - (
458,150)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) 41,345 44,584
Accrued management fees 11,235
13,775
Incentive fees payable (69,730)
124,260
Net cash provided by operating activities 991,809
688,453
CASH FLOWS FROM FINANCING ACTIVITIES
Continuous offering 13,500,326 1
3,876,040
Increase in subscriptions receivable(61,503)
(520,403)
Increase in redemptions payable 261,260 157,881
Redemptions of units (2,961,093)
(2,519,126)
Net cash provided by financing activities 10,738,990
10,994,392
Net increase in cash 11,730,799 1
1,682,845
Balance at beginning of period 43,020,361
24,954,956
Balance at end of period 54,751,160
36,637,801
<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 $117,115 and
$1,967,187 at September 30, 1999 and December 31, 1998,
respectively.
Of the $117,115 net unrealized gain on open contracts at
September 30, 1999, $178,564 related to exchange-traded futures
contracts and $(61,449) 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
September 30, 1999 and December 31, 1998 mature through March
2000 and March 1999, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at September 30, 1999
and December 31, 1998 mature through December 1999 and March
1999, respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial 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 $54,929,724 and
$45,065,113 at September 30, 1999 and December 31, 1998,
respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of Carr, the
sole counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions,
exchanges and sales of additional Units of Limited Partnership
Interest ("Unit(s)") will affect the amount of funds available
for investment in futures interests in subsequent periods. Since
they are at the discretion of Limited Partners, it is not
possible to estimate the amount and therefore, the impact of
future redemptions, exchanges or sales of additional Units.
Results of Operations
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income of $497,147
and posted a decrease in Net Asset Value per Unit. The most
significant losses were recorded in the global interest rate
futures component of the balanced portfolio during July and
August from long U.S. interest rate futures positions as domestic
bond prices moved lower after Federal Reserve Chairman Alan
Greenspan commented that central bankers must consider stock
<PAGE>
prices when setting monetary policy and as economic reports added
to concern that the U.S. Federal Reserve will raise interest
rates soon. In the global stock index component, losses were
experienced during July from long German stock index futures
positions as German equity prices declined as investors reacted
to the strengthening euro by selling auto maker and export-
dependent stocks. Prices in this market were also pushed lower
later in the month by the weakness on Wall Street and lower-than-
expected second quarter earnings reported by DaimlerChrysler.
During September, additional losses were incurred in this market
as German equity prices dropped following a decline in U.S. stock
prices. In agriculturals, small losses were recorded from short
wheat futures positions as grain prices increased significantly
amid drier-than-expected weather in the U.S. Midwest, forecasts
for very little rain and concerns about shriveling production.
These losses were partially offset by gains recorded in the
energy markets from long crude and gas oil futures positions as
oil prices climbed to a 33-month high after OPEC ministers
confirmed that they will uphold their global cutbacks until April
of next year. Profits were also recorded in the metals markets
from long nickel futures positions as prices moved higher aided
by perceptions of improving Asian demand and a drop in LME
warehouse stocks. In the currency markets, gains were recorded
from short cross-rate positions in the euro versus the Japanese
yen as the value of the yen strengthened due to optimism
regarding the Japanese economy and Japanese investors selling
euros looking to hedge their investments. Additional gains were
recorded from long Japanese yen positions versus the U.S. dollar
<PAGE>
as the value of the yen strengthened against the dollar due to
inflationary pressures in the United States and optimistic
prospects for economic growth in Japan. Total expenses for the
three months ended September 30, 1999 were $796,341, resulting in
a net loss of $1,293,488. The value of a Unit decreased from
$16.17 at June 30, 1999 to $15.79 at September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$1,647,006 and, after expenses, posted a decrease in Net Asset
Value per Unit. The most significant net losses were experienced
in the fixed income component 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
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. During July and August, long
U.S. interest rate futures positions resulted in losses as
domestic bond prices moved temporarily lower after Federal
Reserve Chairman Alan Greenspan commented that central bankers
must consider stock prices when setting monetary policy and as
economic reports added to concern that the U.S. Federal Reserve
will raise interest rates. 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
<PAGE>
prices fell due to technical factors and on reports of favorable
planting conditions. During early-August, losses were experienced
from short corn futures positions as prices increased
significantly amid drier-than-expected weather in the U.S.
Midwest, forecasts for very little rain and concerns about
shriveling production. These losses were partially offset by
gains recorded in the energy markets from long positions in crude
and gas oil futures, as prices climbed higher during March
following an agreement reached by both OPEC and non-OPEC
countries to cut total output beginning April 1st.. Oil prices
continued to move higher throughout the third quarter due to
declining supplies, increasing demand and adherence to output
cuts. In the currency markets, gains were recorded during August
from short euro, Swiss franc and Australian dollar positions
versus the Japanese yen as the value of the yen strengthened due
to optimism regarding the Japanese economy and Japanese investors
selling euros looking to hedge their investments. In the global
stock index futures component, gains were recorded during January
and March 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. Total expenses
for the nine months ended September 30, 1999 were $2,436,286,
resulting in a net loss of $789,280. The value of a Unit
decreased from $16.00 at December 31, 1998 to $15.79 at September
30, 1999.
<PAGE>
For the Quarter and Nine Months Ended September 30, 1998
For the quarter ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$3,074,107 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the global bond
futures component of the balanced portfolio from long positions
in U.S. Treasury note futures and Treasury bond futures.
Domestic bond prices soared higher during August as investors
flocked to these "safe havens" amid the political and economic
upheaval in Russia and other emerging market countries. During
September, bond prices continued to climb due to the scandal
plaguing the White House, the anticipation of the Federal
Reserve's late month interest rate cut and reported losses by
several major hedge funds. Additional profits were recorded from
long European and Japanese bond futures as prices in these
markets also moved higher amid global economic and political
uncertainty. Long S&P 500 Index futures positions produced
losses for the stock index futures component as domestic equity
prices plunged during mid-July and again during August on fears
that the troubles plaguing Russia, Japan, and Latin America would
have a negative effect on the U.S. economy. In currencies, long
positions in the Spanish peseta resulted in smaller gains during
September as the value of the U.S. dollar weakened versus other
currencies due to the scandal in Washington. Trading in the
managed futures component
<PAGE>
provided mixed results during the quarter. In the agricultural
markets, short positions in corn and lean hog futures were
profitable during August as prices in these markets continued to
trend lower amid large supplies and weaker exports. In metals,
losses resulted from trading base metals as prices moved in a
short-term volatile pattern during July. In soft commodities,
additional losses were incurred from long cotton futures
positions as cotton prices finished July sharply lower. Smaller
losses were experienced in the energy markets during September.
Total expenses for the three months ended September 30, 1998 were
$648,819, resulting in net income of $2,425,288. The value of a
Unit increased from 14.28 at June 30, 1998 to 15.21 at September
30, 1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$4,967,882 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded during the third quarter
in the global bond futures component of the balanced portfolio
from long positions in U.S. interest rate futures, particularly
five-year Treasury note futures. Additional gains in this sector
were recorded from long European bond futures positions during a
majority of the first quarter, as well as during August and
September. The recent worldwide economic and political
instability created an extremely positive environment for bond
prices during the third quarter, thus resulting in gains for the
Partnership's long positions. The stock index futures component
contributed smaller gains from long S&P 500 Index futures
<PAGE>
positions as domestic stock prices climbed to record highs during
the first and second quarters. Overall trading results in the
managed futures component were mixed. Short corn and livestock
futures positions produced smaller profits as prices fell in
these markets during late August. Gains were recorded during the
first quarter from short crude oil futures positions as oil
prices declined on reports of a potential agreement between the
U.N. and Iraq. A portion of the Partnership's overall gains was
offset by losses experienced in the soft commodities and metals
markets. Long cotton futures positions resulted in losses as
cotton prices reversed lower during July on news of improved
weather conditions. Short positions in base metals futures early
in the third quarter proved unfavorable as prices moved higher
early in July. As a result of this move higher, new long
positions were established in these markets which resulted in
additional losses as base metals prices regained their downward
momentum. Smaller year-to-date losses were experienced in the
currency markets primarily from transactions involving the
British pound as its value moved without consistent direction
relative to other currencies. Total expenses for the nine
months ended September 30, 1998 were $1,548,494, resulting in net
income of $3,419,388. The value of a Unit increased from 13.75
at December 31, 1997 to 15.21 at September 30, 1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
<PAGE>
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 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
<PAGE>
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
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 Partner-
ship's market risk must be qualified by the inherent uncertainty
of its speculative trading, which may cause future losses and
volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market-sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partner-
ship'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 September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$55 million.
Primary Market September 30, 1999
Risk Category Value at Risk
Interest Rate (0.45)%
Equity (0.51)
Currency (0.42)
Commodity (0.40)
Aggregate Value at Risk (0.90)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at September 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business is the speculative trading of primarily futures
<PAGE>
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 October 1,
1998 through September 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (0.76)% (0.45)% (0.60)%
Equity (1.74) (0.51) (1.07)
Currency (0.53) (0.26) (0.42)
Commodity (0.40) (0.26) (0.32)
Aggregate Value at Risk (1.70)% (0.90)% (1.34)%
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
<PAGE>
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.
The foregoing VaR tables present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at September 30, 1999 and for the end of the four
quarterly reporting periods from October 1, 1998 through September
30, 1999. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage and monitor risk and there can
be no assurance that the Partnership's actual losses on a
particular
<PAGE>
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
92%) 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,
<PAGE>
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 September 30, 1999, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The primary market exposure in the Partner-
ship this quarter was in the interest rate sector. Exposure was
spread across the U.S., European, Japanese, and Australian
interest rate sectors. Interest rate movements directly affect
the price of the sovereign bond futures positions held by the
Partnership and indirectly affect the value of its stock index
and currency positions. Interest rate movements in one country
as well as relative interest rate movements between countries
materially impact the Partnership's profitability. The
Partnership's primary interest rate exposure is generally to
<PAGE>
interest rate fluctuations in the United States and the other G-7
countries. However, the Partnership also takes futures positions
in the government debt of smaller nations - e.g. Australia and
Spain. Demeter anticipates that G-7 and Australian interest
rates will remain the primary interest rate exposure of the
Partnership for the foreseeable future. The changes in interest
rates, which have the most effect on the Partnership, are changes
in long-term, as opposed to short-term, rates. Most of the
speculative futures positions held by the Partnership are in
medium-to long- term instruments. 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 September 30, 1999, the
Partnership's primary exposures were in the S&P 500 (U.S.),
Nikkei (Japan), DAX (German), and FT-SE (Britain) stock indices.
The Partnership is primarily exposed to the risk of adverse price
trends or static markets in the U.S., European and Japanese
indices. (Static markets would not cause major market changes
but would make it difficult for the Partnership to avoid being
"whipsawed" into numerous small losses).
<PAGE>
Currency. The Partnership's currency exposure is to exchange
rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and
currency pairs. Interest rate changes as well as political and
general economic conditions influence these fluctuations. The
Partnership trades in a large number of currencies, including
cross-rates - i.e., positions between two currencies other than
the U.S. dollar. For the third quarter of 1999, the
Partnership's major exposures were in the euro currency crosses
and outright U.S. dollar positions. (Outright positions consist
of the U.S. dollar vs. other 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 September 30, 1999,
the Partnership had a reasonable amount of exposure in the
markets that comprise these sectors. Most of the exposure,
however, was in the sugar, corn and livestock markets. Supply
and demand inequalities, severe weather disruption and market
expectations affect price movements in these markets.
<PAGE>
Energy. On September 30, 1999 the Partnership's energy
exposure was shared by futures contracts in the oil and natural
gas markets. Price movements in these markets result from
political developments in the Middle East, weather patterns, and
other economic fundamentals. As oil prices have increased about
100% this year, and, given that the agreement by OPEC to cut
production is approaching expiration in March 2000, it is
possible that volatility will remain on the high end.
Significant profits and losses have been and are expected to
continue to be experienced in this market. Natural gas, also a
primary energy market exposure, has exhibited more volatility
than the oil markets on an intra-day and daily basis and is
expected to continue in this choppy patterns.
Metals. The Partnership's metals market exposure is to
fluctuations in the price of base metals. During periods of
volatility, base metals will affect performance dramatically.
Demeter anticipates that the base metals will remain the primary
metals market exposure of the Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in Mexican pesos, Singapore dollars and
Japanese yen. The Partnership controls the non-trading risk of
<PAGE>
these balances by regularly converting these balances back into
dollars upon liquidation of the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading 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:
In the New York action, the motion to dismiss the amended
complaint with prejudice has been fully briefed and argued and
the Dean Witter Parties are awaiting the New York Supreme Court's
decision.
In the California action, on September 24, 1999, the Superior
Court in the State of California entered an order dismissing the
consolidated amended complaint without prejudice on consent.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership, Morgan Stanley Dean Witter Spectrum 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
<PAGE>
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 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 September 30, 1999, 4,404,900.909 Units were sold, leaving
3,595,099.091 Units unsold as of September 30, 1999. The aggregate
price of the Units sold through September 30, 1999 was $57,926,469.
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.
<PAGE>
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)
November 12, 1999 By:/s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and Chief Financial
Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Morgan
Stanley Dean Witter Spectrum Global Balanced L.P. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 54,751,160
<SECURITIES> 0
<RECEIVABLES> 1,443,574<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,311,849<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 56,311,849<F3>
<SALES> 0
<TOTAL-REVENUES> 1,647,006<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,436,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (789,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> (789,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789,280)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscriptions receivable of $1,224,600 and
interest receivable of $218,974.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $117,115.
<F3>Liabilities include redemptions payable of $379,450, accrued
brokerage fees of $211,186, and accrued management fees of $57,388.
<F4>Total revenues include realized trading revenue of $1,814,125,
net change in unrealized of $(1,850,072) and interest income of
$1,682,953.
</FN>
</TABLE>
