UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to__________________
Commission File No. 0-26340
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___________
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition June 30, 2000
(Unaudited) and December 31, 1999.....................2
Statements of Operations for the Quarters Ended
June 30, 2000 and 1999 (Unaudited)....................3
Statements of Operations for the Six Months Ended
June 30, 2000 and 1999 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 2000 and 1999
(Unaudited)...........................................5
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (Unaudited)....................6
Notes to Financial Statements (Unaudited)..........7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..13-22
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ...................................23-35
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................36
Item 2. Changes in Securities and Use of Proceeds......36-37
Item 5. Other Information.................................38
Item 6. Exhibits and Reports on Form 8-K...............38-39
</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>
June 30, December 31,
2000 1999 $
$
(Unaudited)
ASSETS
<S>
<C> <C>
Equity in futures interests trading accounts:
Cash 54,760,307 56,904,921
Net unrealized gain on open contracts631,015 810,114
Net option premiums (85,400) ______-___
Total Trading Equity 55,305,922 57,715,035
Subscriptions receivable 561,906 847,954
Interest receivable (DWR) 269,869 244,599
Total Assets 56,137,697 58,807,588
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 665,921 667,741
Accrued brokerage fees (DWR) 212,615 216,895
Accrued management fees 57,776 58,940
Total Liabilities 936,312 943,576
Partners' Capital
Limited Partners (3,495,884.927 and
3,549,239.387 Units, respectively) 54,567,897 57,209,838
General Partner (40,584.304 Units) 633,488 654,174
Total Partners' Capital 55,201,385 57,864,012
Total Liabilities and Partners' Capital 56,137,697 58,807,588
NET ASSET VALUE PER UNIT 15.61 16.12
<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 June 30,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (1,371,125) 1,607,890
Net change in unrealized (2,185,280) (640,884)
Total Trading Results (3,556,405) 967,006
Interest Income (DWR) 819,336 547,069
Total Revenues (2,737,069) 1,514,075
EXPENSES
Brokerage fees (DWR) 651,779 582,828
Management fees 177,116 158,379
Incentive fees _______-___ 215,651
Total Expenses 828,895 956,858
NET INCOME (LOSS) (3,565,964) 557,217
NET INCOME (LOSS) ALLOCATION
Limited Partners (3,524,974) 551,551
General Partner (40,990) 5,666
NET INCOME (LOSS) PER UNIT
Limited Partners
(1.01) 0.19
General Partner
(1.01) 0.19
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (1,504,246) 2,609,767
Net change in unrealized (179,099) (1,510,952)
Total Trading Results (1,683,345) 1,098,815
Interest Income (DWR) 1,594,762 1,045,338
Total Revenues (88,583) 2,144,153
EXPENSES
Brokerage fees (DWR) 1,316,886 1,119,956
Management fees 357,853 304,338
Incentive fees ______-___ 215,651
Total Expenses 1,674,739 1,639,945
NET INCOME (LOSS) (1,763,322) 504,208
NET INCOME (LOSS) ALLOCATION
Limited Partners (1,742,636) 499,137
General Partner (20,686) 5,071
NET INCOME (LOSS) PER UNIT
Limited Partners
(0.51) 0.17
General Partner
(0.51) 0.17
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C>
<C> <C> <C>
Partners' Capital,
December 31, 1998 2,869,073.505 $45,399,750 $514,122
$45,913,872
Offering of Units 585,087.342 9,382,234 50,000 9,432,234
Net Income
- 499,137 5,071 504,208
Redemptions (116,687.536) (1,879,113)
- (1,879,113)
Partners' Capital,
June 30, 1999 3,337,473.311 $53,402,008 $569,193
$53,971,201
Partners' Capital,
December 31, 1999 3,589,823.691 $57,209,838 $654,174
$57,864,012
Offering of Units 361,597.665 5,778,868
- 5,778,868
Net Loss
- (1,742,636) (20,686)
(1,763,322)
Redemptions (414,952.125) (6,678,173) _____-___
(6,678,173)
Partners' Capital,
June 30, 2000 3,536,469.231 $54,567,897 $633,488
$55,201,385
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S>
<C> <C>
Net income (loss) (1,763,322) 504,208
Noncash item included in net income (loss):
Net change in unrealized 179,099 1
,510,952
(Increase) decrease in operating assets:
Net option premiums 85,400
-
Interest receivable (DWR) (25,270) (19,525)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) (4,280) 27,611
Accrued management fees (1,164) 7,503
Incentive fees payable ________-__
(69,730)
Net cash provided by (used for) operating activities (1
,529,537) 1,961,019
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units 5,778,868 9
,432,234 (
Increase) decrease in subscriptions receivable 286,048
(367,033)
Increase (decrease) in redemptions payable(1,820) 133,867
Redemptions of Units (6,678,173)
(1,879,113)
Net cash provided by (used for) financing activities
(615,077) 7,319,955
Net increase (decrease) in cash (2,144,614) 9
,280,974
Balance at beginning of period 56,904,921
43,020,361
Balance at end of period 54,760,307
52,301,335
<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, 1999 Annual
Report on Form 10-K.
1. Organization
Morgan Stanley Dean Witter Spectrum Global Balanced L.P. is a
Delaware limited partnership organized to engage primarily in the
speculative trading of futures, options and forward contracts,
physical commodities and other commodity interests, including,
but not limited to foreign currencies, financial instruments,
metals, energy and agricultural products (collectively, "futures
interests"). The Partnership is one of the Morgan Stanley Dean
Witter Spectrum Series of funds, comprised of the Partnership,
Morgan Stanley Dean Witter Spectrum Commodity L.P., Morgan
Stanley Dean Witter Spectrum Currency L.P., Morgan Stanley Dean
Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum
Strategic L.P., and Morgan Stanley Dean Witter Spectrum Technical
L.P.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The general partner is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter
Reynolds Inc. ("DWR") and an unaffiliated clearing commodity
broker, Carr Futures Inc. ("Carr"), provides clearing and
execution services. Both Demeter and DWR are wholly-owned
subsidiaries of Morgan Stanley Dean Witter & Co. 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, options and forward contracts,
physical commodities and other commodity interests, including but
not limited to foreign currencies, financial instruments, metals,
energy and agricultural products. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified
date and price. Risk arises from 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
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
which may significantly influence the market value of these
contracts, including interest rate volatility.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging
Activities" effective for fiscal years beginning after June 15,
1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133," which defers the required
implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. However, the Partnership had previously elected
to adopt the provisions of SFAS No. 133 beginning with the fiscal
year ended December 31, 1998. SFAS No. 133 supersedes SFAS No.
119 and No. 105, which required the disclosure of average
aggregate fair values and contract/notional values, respectively,
of derivative financial instruments for an entity which carries
its assets at fair value. The application of SFAS No. 133 does
not have a significant effect on the Partnership's financial
statements.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The net unrealized gain on open contracts are reported as a
component of "Equity in futures interests trading accounts" on
the statements of financial condition and totaled $631,015 and
$810,114 at June 30, 2000 and December 31, 1999, respectively.
Of the $631,015 net unrealized gain on open contracts at June 30,
2000, $635,123 related to exchange-traded futures and futures-
styled options contracts and $(4,108) related to off-exchange-
traded forward currency contracts.
Of the $810,114 net unrealized gain on open contracts at December
31, 1999, $669,640 related to exchange-traded futures and futures-
styled options contracts and $140,474 related to off-exchange-
traded forward currency contracts.
Exchange-traded futures and futures-styled options contracts held
by the Partnership at June 30, 2000 and December 31, 1999 mature
through December 2000 and June 2000, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at June
30, 2000 and December 31, 1999 mature through September 2000 and
March 2000, respectively.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Partnership has 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.
The Partnership also has credit risk because DWR and Carr act as
the futures commission merchants or the counterparties, with
respect to most of the Partnership's assets. Exchange-traded
futures and futures-styled options contracts are marked to market
on a daily basis, with variations in value settled on a daily
basis. Each of DWR and Carr, as a futures commission merchant for
all of the Partnership's exchange-traded futures and futures-
styled options contracts, are required, pursuant to regulations
of the Commodity Futures Trading Commission ("CFTC"), to
segregate from their own assets, and for the sole benefit of
their commodity customers, all funds held by them with respect to
exchange-traded futures and futures-styled options contracts,
including an amount equal to the net unrealized gain on all open
futures and futures-styled options contracts, which funds, in the
aggregate, totaled $55,395,430 and $57,574,561 at June 30, 2000
and December 31, 1999, respectively. With respect to the
Partnership's off-exchange-traded forward currency contracts,
there are no daily settlements of variations in value nor is
there any requirement
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
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. The Partnership has a netting agreement
with Carr. This agreement, which seeks to reduce both the
Partnership's and Carr's exposure on off-exchange-traded forward
currency contracts, should materially decrease the Partnership's
credit risk in the event of Carr's bankruptcy or insolvency.
Carr's parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and Carr as clearing broker in separate futures
trading accounts established for the Trading Advisor, which
assets are used as margin to engage in trading. The assets are
held in either non-interest-bearing bank accounts or in
securities and instruments permitted by the CFTC for investment
of customer segregated or secured funds. The Partnership's
assets held by the commodity brokers may be used as margin solely
for the Partnership's trading. Since the Partnership's sole
purpose is to trade in futures, options and forwards, it is
expected that the Partnership will continue to own such liquid
assets for margin purposes.
The Partnership's investment in futures, options and forwards
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive days with little or no
trading. These market conditions could
<PAGE>
prevent the Partnership from promptly liquidating its futures
contracts and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources - The Partnership does not have, or expect to
have, any capital assets. Redemptions, exchanges and sales of
additional units of limited partnership interest ("Unit(s)") in
the future will affect the amount of funds available for
investment in futures interests in subsequent periods. It is not
possible to estimate the amount and therefore, the impact of
future redemptions of Units.
Results of Operations
General. The Partnership's results depend on its Trading Advisor
and the ability of the Trading Advisor's trading programs to take
<PAGE>
advantage of price movements or other profit opportunities in the
futures and forwards markets. The following presents a summary
of the Partnership's operations for the quarter and six months
ended June 30, 2000 and 1999, respectively, and a general
discussion of its trading activities during each period. It is
important to note, however, that the Trading Advisor trades in
various markets at different times and that prior activity in a
particular market does not mean that such market will be actively
traded by the Trading Advisor or will be profitable in the
future. Consequently, the results of operations of the
Partnership is difficult to discuss other than in the context of
its Trading Advisor's trading activities on behalf of the
Partnership as a whole and how the Partnership has performed in
the past.
Results of Operations
For the Quarter and Six Months Ended June 30, 2000
For the quarter ended June 30, 2000, the Partnership recorded
total trading losses net of interest income of $2,737,069 and
posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 4.6% were recorded primarily
during April and May in the global stock index component from
long positions in Nikkei Index futures as Japanese equity prices
declined sharply due primarily to the weakness in most global
technology issues and political uncertainty in Japan. In the
currency markets, losses of approximately 1.5% were recorded
primarily during May and June from short euro positions relative
<PAGE>
to the Australian and U.S. dollars as the value of the euro
reversed higher amid suggestions that intervention to support the
euro was a possibility and interest rate hikes in Europe. The
U.S. dollar, which had strengthened earlier in the second
quarter, weakened versus the euro during early June due primarily
to the perception that interest rates in the U.S. may have topped
out in the near term. In the global interest rate component,
losses of approximately 1.3% were recorded primarily during April
and May from long positions in U.S. interest rate futures as
prices declined in anticipation of the Federal Open Market
Committee's decision to raise key interest rates. In the metals
markets, losses of approximately 0.5% were experienced throughout
the majority of the quarter from trading copper and nickel
futures as prices moved inconsistently on technically based
factors. These losses were partially offset by gains of
approximately 1.7% recorded in the energy markets primarily
during May from long positions in natural gas futures as prices
continued their upward trend, as data released by the American
Gas Association further confirmed fears that inventory levels
remain low. Adding to supply concerns were fears that the U.S.
demand will outstrip production this summer, when inventories are
typically refilled for the winter. In the agricultural markets,
gains of approximately 0.1% were produced primarily during June
from short corn futures positions as grain prices declined.
Total expenses for the three months ended June 30, 2000 were
$828,895, resulting in a net loss of $3,565,964. The value of a
<PAGE>
Unit decreased from $16.62 at March 31, 2000 to $15.61 at June
30, 2000.
For the six months ended June 30, 2000, the Partnership recorded
total trading losses net of interest income of $88,583 and posted
a decrease in Net Asset Value per Unit. The most significant
losses of approximately 2.7% were recorded in the global stock
index futures component primarily during April and May from long
positions in Nikkei Index futures as Japanese equity prices
declined due primarily to the weakness in most global technology
issues and political uncertainty in Japan. Additional losses
were recorded from long positions in FTSE Index futures as
British stock prices decreased. In the currency markets, losses
of approximately 1.1% were recorded primarily during May and June
from short euro positions relative to the Australian and U.S.
dollars as the value of the euro reversed higher amid suggestions
that intervention to support the euro was a possibility and
interest rate hikes in Europe. In the livestock markets, losses
of approximately 0.7% were recorded during January from long
positions in live cattle futures as prices declined after the
USDA raised its forecast for U.S. red meat production in 2000.
In the agricultural markets, losses of approximately 0.3% were
experienced from long corn futures positions as prices declined
in late March amid rainfall in the U.S. Midwest. Early in
February, losses were incurred from long positions in soybean oil
as soybean prices moved lower following rains in the growing
<PAGE>
region of South America, particularly Brazil. These losses were
partially offset by gains of approximately 1.9% recorded in the
energy markets primarily during May from long positions in
natural gas futures as prices continued their upward trend, as
data released by the American Gas Association further confirmed
fears that inventory levels remain low. Additional gains were
recorded during February from long positions in crude oil futures
as prices increased due to a combination of cold weather,
declining inventories and increasing demand. Gains were also
recorded during June as oil prices surged in reaction to the
dismissal by OPEC of a price setting mechanism and a promise of a
modest production increase. Total expenses for the six months
ended June 30, 2000 were $1,674,739, resulting in a net loss of
$1,763,322. The value of a Unit decreased from $16.12 at
December 31, 1999 to $15.61 at June 30, 2000.
For the Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $1,514,075
and posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 2.1% were recorded primarily
during April and May in the stock index component of the balanced
portfolio from long German stock index futures positions as
prices increased in reaction to record high closes for Wall
Street and helped further by robust performance in Tokyo.
Additional gains were recorded during June as German equity
<PAGE>
prices increased fueled by Japan's Nikkei closing at its
strongest level since October 1997. In the fixed income
component, gains of approximately 0.9% were recorded primarily
during June from short positions in European interest rate
futures, particularly Spanish bond futures, as prices declined
due to dampened sentiment regarding the European Monetary Union
and fears of an interest rate hike in the U.S. These gains were
partially offset by losses of approximately 0.8% recorded in the
metals markets from long positions in nickel and copper futures
as base metals prices declined significantly in late May amid a
large supply, low demand and the possibility of a production cut
in the near future being judged unlikely. During June, additional
losses were incurred in this market complex from short copper
futures positions as prices moved higher due to a drop in
warehouse stocks. In the currency markets, losses of
approximately 0.2% were experienced primarily from previously
established short positions in the Singapore dollar as its value
increased versus the U.S. dollar during mid-June due to the short-
lived strength in the Japanese yen. In the agricultural markets,
losses of approximately 0.2% were recorded primarily from long
corn futures positions as prices regressed in early April in
reaction to reports by the USDA that the expected corn surplus
will be one of the biggest in years and from declining demand
from Asian markets. Later in April corn prices fell due to
aggressive selling by commodity investment funds amid technical
factors and on reports of favorable planting
<PAGE>
conditions. Total expenses for the three months ended June 30,
1999 were $956,858, resulting in net income of $557,217. The
value of a Unit increased from $15.98 at March 31, 1999 to $16.17
at June 30, 1999.
For the six months ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $2,144,153
and posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 2.9% were recorded in the
stock index component primarily from long S&P 500 Index futures
positions during January and March as domestic equity prices
increased in reaction to Wall Street reaching a major milestone
during March, as the Dow Jones Industrial Average hit 10,000 for
the first time. During early April, additional profits were
recorded as the S&P 500 Index reached record highs in response to
an interest rate cut by the European Central Bank aimed at
boosting their region's economy, strong sales at domestic
retailers and optimism about earnings from financial services
companies. During late June, domestic stocks received another
boost as investors sensed that Wall Street's fears the Federal
Reserve would launch a big rise in interest rates were over-
blown. In the energy markets, gains of approximately 0.6% were
recorded primarily during March from long positions in crude and
gas oil futures as prices moved significantly higher due largely
to the news that both OPEC and non-OPEC countries had reached an
<PAGE>
agreement to cut total output by approximately two million
barrels a day beginning April 1st. In the currency markets,
gains of approximately 0.5% were recorded primarily from short
positions in the Swiss franc and the European common currency,
the euro, throughout a majority of the first half of the year as
the value of these currencies weakened versus the U.S. dollar
despite NATO's suspension of bombing and the subsequent
withdrawal of Serbian forces from Kosovo. The dollar gained
ground against the euro and franc as investors bought dollars
after tame U.S. inflation data eased fears that the Federal
Reserve was about to embark on a series of rate hikes to head off
spiraling inflation. These gains were partially offset by losses
of approximately 1.0% experienced in the metals markets primarily
from short copper futures positions as prices moved significantly
higher in late March in response to a decline in warehouse
stocks. Additional losses were recorded primarily during May
from long positions in nickel and copper futures as base metal
prices fell amid a technical sell-off and during June from short
positions in copper futures as prices increased due to a drop in
warehouse stocks. In the fixed income component, losses of
approximately 0.4% were recorded during February, April and May
from long U.S. interest rate futures positions as prices dropped
in reaction to Federal Reserve Chairman Alan Greenspan's warnings
in Congressional testimony in late February that a strong economy
could reignite inflation. Fears that the Federal Reserve
eventually could boost target interest rates pushed down domestic
<PAGE>
bond prices during the first and second quarters and forced
yields higher. Reactions to a higher-than-expected rise in the
Consumer Price Index and comments by Federal Reserve Chairman
Alan Greenspan that continued economic expansion in the U.S.
without significant signs of inflation also pushed domestic bond
prices lower. Total expenses for the six months ended June 30,
1999 were $1,639,945, resulting in net income of $504,208. The
value of a Unit increased from $16.00 at December 31, 1998 to
$16.17 at June 30, 1999.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
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The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the 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 using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and cash
flow. Profits and losses on open positions of exchange-traded
futures interests are settled daily through variation margin.
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The Partnership's risk exposure in the market sectors traded by
the Trading Advisor is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the Partner-
ship's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
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historic reporting purposes only and is not utilized by either
Demeter or the Trading Advisor in its daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of June 30, 2000 and 1999. At
June 30, 2000 and 1999, the Partnership's total capitalization
was approximately $55 million and $54 million, respectively.
Primary Market June 30, 2000 June 30, 1999
Risk Category Value at Risk Value at Risk
Equity (1.06)% (1.03)%
Interest Rate (0.84) (0.59)
Currency (0.46) (0.53)
Commodity (0.39) (0.26)
Aggregate Value at Risk (1.42)% (1.38)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
individual Market Categories listed above. Aggregate VaR will be
lower as it takes into account correlation among different
positions and categories.
The table above represents the VaR of the Partnership's open
positions at June 30, 2000 and 1999 only and is not necessarily
representative of either the historic or future risk of an
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investment in the Partnership. Because the Partnership's only
business is the speculative trading of futures interests, the
composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR, as a percentage of total
Net Assets for the four quarterly reporting periods from July 1,
1999 through June 30, 2000.
Primary Market Risk Category High Low Average
Equity (1.28)% (1.02)% (1.10)%
Interest Rate (0.84) (0.59) (0.73)
Currency (0.53) (0.46) (0.50)
Commodity (0.39) (0.26) (0.31)
Aggregate Value at Risk (1.67)% (1.38)% (1.46)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by the
Partnership to typically be many times the total capitalization of
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the Partnership. The value of the Partnership's open positions
thus creates a "risk of ruin" not typically found in other
investments. The relative size of the positions held may cause the
Partnership to incur losses greatly in excess of VaR within a short
period of time, given the effects of the leverage employed and
market volatility. The VaR tables above, as well as the past
performance of the Partnership, gives no indication of such "risk
of ruin". In addition, VaR risk measures should be viewed in light
of the methodology's limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
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aggregate basis at June 30, 2000 and for the end of the four
quarterly reporting periods from July 1, 1999 through June 30,
2000. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage or monitor risk. There can be
no assurance that the Partnership's actual losses on a particular
day will not exceed the VaR amounts indicated above or that such
losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market risk
they may represent are immaterial. At June 30, 2000 the
Partnership's cash balance at DWR was approximately 93% of its
total Net Asset Value. A decline in short-term interest rates will
result in a decline in the Partnership's cash management income.
This cash flow risk is not considered material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership's market-
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the
Partnership's
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market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. The
Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading 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 June 30, 2000, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
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Equity. The primary market exposure in the Partnership at June
30, 2000 was in the global stock index sector. The primary
equity exposure is to equity price risk in the G-7 countries.
The G-7 countries consist of France, U.S., Britain, Germany,
Japan, Italy and Canada. The stock index futures traded by the
Partnership are by law limited to futures on broadly based
indices. As of June 30, 2000, the Partnership's primary
exposures were in the Nikkei (Japan), S&P 500 (U.S.), FT-SE
(Britain) and DAX (German) 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.
Interest Rate. The second largest market exposure at June 30,
2000 was in the global interest rate complex. Exposure primarily
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
interest rate fluctuations in the United States and the other G-7
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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, Australian and Spanish
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, should the medium- to long-term rates to remain
steady.
Currency. The Partnership's currency exposure at June 30, 2000
was 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 second quarter of
2000, 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
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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.
Energy. On June 30, 2000, the Partnership's energy exposure was
shared primarily by futures contracts in the crude oil and
natural gas markets. Price movements in these markets result
from political developments in the Middle East, weather patterns,
and other economic fundamentals. It is possible that volatility
will remain high. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in this market. Natural gas has exhibited volatility
in prices resulting from weather patterns and supply and demand
factors and may continue in this choppy pattern.
Soft Commodities and Agriculturals . On June 30, 2000, the
Partnership had exposure in the live cattle, corn and soybean oil
markets. Supply and demand inequalities, severe weather
disruption and market expectations affect price movements in
these markets.
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Metals. The Partnership's metals market exposure at June 30,
2000 was 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 June 30, 2000:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros and Japanese yen. The Partnership
controls the non-trading risk of these balances by regularly
converting these balances back into dollars upon liquidation of
the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisor, separately, attempt to
manage the risk of the Partnership's open positions in
essentially the same manner in all market categories traded.
Demeter attempts to manage market exposure by diversifying the
Partnership's assets among different market sectors and trading
approaches, and monitoring the performance of the Trading Advisor
daily. In addition, the Trading Advisor establishes
diversification guidelines, often set in terms of the maximum
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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. Cash is the only Partnership investment
directed by Demeter, rather than the Trading Advisor.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Please refer to Legal Proceedings previously disclosed in the
Partnership's Form 10-Q for the quarter ended March 31, 2000 and
Form 10-K for the year ended December 31, 1999.
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 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 pursuant to another
Registration Statement on Form S-1, which became effective on April
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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 Partnership registered an additional 3,000,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on February 28, 2000 (SEC File Number 333-90475).
The managing underwriter for the Partnership is DWR.
Units are being sold at monthly closings as of the last day of each
month at a price equal to 100% of the Net Asset Value of a Unit as
of the date of such monthly closing.
Through June 30, 2000, 4,941,762.166 Units were sold, leaving
6,058,237.834 Units unsold as of June 30, 2000. The aggregate
price of the Units sold through June 30, 2000 was $66,479,290.
Since DWR has paid all offering expenses and no other expenses are
chargeable against proceeds, 100% of the proceeds of the offering
have been applied to the working capital of the Partnership for use
in accordance with the "Investment Programs, Use of Proceeds and
Trading Policies" section of the Prospectus included as part of
each Registration Statement.
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Item 5. OTHER INFORMATION
Effective July 1, 2000, Lewis A. Raibley, III resigned as Chief
Financial Officer and a Director of Demeter and Dean Witter
Futures Currency Management Inc. Effective July 10, 2000,
Raymond E. Koch replaced Lewis A. Raibley, III as Chief Financial
Officer of Demeter.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.01 Form of Amended and Restated Limited Partnership Agreement
of the Partnership, dated as of May 31, 1998, is
incorporated by reference to Exhibit A of the
Partnership's Prospectus, dated March 6, 2000, filed with
the Securities and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933, as amended, on
March 9, 2000.
3.02 Certificate of Limited Partnership, dated April 18, 1994,
is incorporated by reference to Exhibit 3.02 of the
Partnership's Registration Statement on Form S-1 (File No.
33-80146) filed with the Securities and Exchange
Commission on June 10, 1994.
3.03 Certificate of Amendment of Certificate of Limited
Partnership, dated April 17, 1998, is incorporated by
reference to Exhibit 3.03 of the Partnership's
Registration Statement on Form S-1 (File No. 333-3222)
filed with the Securities and Exchange Commission on April
12, 1999.
10.01 Management Agreement, dated as of November 1, 1994, among
the Partnership, Demeter Management Corporation, and RXR,
Inc. is incorporated by reference to Exhibit 10.01 of the
Partnership's Form 10-K (File No. 0-26340) for fiscal year
ended December 31, 1998.
10.02 Amended and Restated Customer Agreement, dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.05 of
the Partnership's Form 10-K (File No. 0-26340) for fiscal
year ended December 31, 1998.
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10.03 Customer Agreement, dated as of December 1, 1997,
among the Partnership, Carr Futures, Inc., and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.06 of
the Partnership's Form 10-K (File No. 0-26340) for fiscal year
ended December 31, 1998.
10.04 International Foreign Exchange Master Agreement, dated
as of August 1, 1997, between the Partnership and Carr
Futures, Inc. is incorporated by reference to Exhibit 10.07 of
the Partnership's Form 10-K (File No. 0-26340) for fiscal
year ended December 31, 1998.
10.05 Subscription and Exchange Agreement and Power of Attorney
to be executed by each purchaser of Units is incorporated
by reference to Exhibit B of the Partnership's Prospectus
dated March 6, 2000, filed with the Securities and
Exchange Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933, as amended, on March 9, 2000.
10.06 Escrow Agreement, dated September 30, 1994, among the
Partnership, Demeter Management Corporation, Dean Witter
Reynolds Inc., and Chemical Bank is incorporated by
reference to Exhibit 10.06 of the Partnership's Form 10-K
(File No. 0-26340) for fiscal year ended December 31,
1998.
(B) Reports on Form 8-K - None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Dean Witter Spectrum
Global Balanced L.P.
(Registrant)
By: Demeter Management Corporation
(General Partner)
August 14, 2000 By:/s/Raymond E. Koch __________
Raymond E. Koch
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.
