UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-26338
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3782231
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
c/o Demeter Management Corporation
Two World Trade Center, 62 Fl. New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
Dean Witter Spectrum Technical L.P.
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition March 31, 1999
(Unaudited) and December 31, 1998.....................2
Statements of Operations for the Quarters Ended
March 31, 1999 and 1998 (Unaudited)...................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1999 and 1998 (Unaudited)....4
Statements of Cash Flows for the Quarters Ended
March 31, 1999 and 1998 (Unaudited)...................5
Notes to Financial Statements (Unaudited)..........6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..11-17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . .17-29
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.............................. 30
Item 2. Changes in Securities and Use of Proceeds......30-32
Item 6. Exhibits and Reports on Form 8-K..................32
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 240,550,643 235,044,325
Net unrealized gain on open contracts 11,178,151 18,909,268
Total Trading Equity 251,728,794 253,953,593
Subscriptions receivable 5,191,582 4,002,633
Interest receivable (DWR) 721,074 717,685
Total Assets 257,641,450 258,673,911
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 2,492,877 1,339,311
Accrued brokerage fees (DWR) 1,549,645 1,439,151
Accrued management fees 854,976 794,015
Total Liabilities 4,897,498 3,572,477
Partners' Capital
Limited Partners (16,335,152.699 and
15,660,041.764 Units, respectively) 250,072,155252,455,045
General Partner (174,526.485 and
164,158.204 Units, respectively) 2,671,797 2,646,389
Total Partners' Capital 252,743,952 255,101,434
Total Liabilities and Partners' Capital 257,641,450 258,673,911
NET ASSET VALUE PER UNIT 15.31 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 TECHNICAL L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (176,028) 9,789,927
Net change in unrealized (7,731,117) (5,006,684)
Total Trading Results (7,907,145) 4,783,243
Interest Income (DWR) 2,094,771 1,860,527
Total Revenues (5,812,374) 6,643,770
EXPENSES
Brokerage fees (DWR) 4,585,319 3,507,551
Management fees 2,529,832 1,834,013
Incentive fees - 209,494
Total Expenses 7,115,151 5,551,058
NET INCOME (LOSS) (12,927,525) 1,092,712
NET INCOME (LOSS) ALLOCATION
Limited Partners (12,792,933) 1,081,679
General Partner (134,592) 11,033
NET INCOME (LOSS) PER UNIT
Limited Partners
(.81) .08
General Partner
(.81) .08
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Quarters Ended March 31, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partners' Capital,
December 31, 199712,434,700.738 $180,099,271 $1,851,236
$181,950,507
Offering of Units 1,063,073.439 15,407,012 100,000
15,507,012
Net Income - 1,081,679 11,033
1,092,712
Redemptions (358,719.768) (5,226,704) -
(5,226,704)
Partners' Capital,
March 31, 199813,139,054.409 $191,361,258 $1,962,269
$193,323,527
Partners' Capital,
December 31, 199815,824,199.968 $252,455,045 $2,646,389
$255,101,434
Offering of Units 1,064,065.488 16,256,999 160,000
16,416,999
Net Loss - (12,792,933) (134,592)
(12,927,525)
Redemptions (378,586.272) (5,846,956) -
(5,846,956)
Partners' Capital,
March 31, 1999 16,509,679.184 250,072,155 2,671,797
252,743,952
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (12,927,525) 1
,092,712 Noncash
item included in net income (loss):
Net change in unrealized 7,731,117 5
,006,684
(Increase) decrease in operating assets:
Interest receivable (DWR) (3,389) 38,584
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) 110,494 87,651
Accrued management fees 60,961 45,830
Incentive fees payable -
(63,791)
Net cash provided by (used for) operating activities (5,028,342)
6,207,670
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units 16,416,999 1
5,507,012
Increase in subscriptions receivable(1,188,949) (
3,774,587)
Increase in redemptions payable 1,153,566 798,951
Redemptions of units (5,846,956)
(5,226,704)
Net cash provided by financing activities 10,534,660
7,304,672
Net increase in cash 5,506,318 1
3,512,342
Balance at beginning of period 235,044,325
168,849,922
Balance at end of period 240,550,643
182,362,264
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL 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 Technical L.P. (formerly, Dean Witter Spectrum
Technical 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 Technical L.P. is a limited
partnership organized to engage in the speculative trading of
futures, forward and options contracts on physical commodities
and other commodities interests, including foreign currencies,
financial instruments, precious and industrial metals, energy
products and agriculturals (collectively, "futures interests").
The Partnership is one of the Morgan Stanley Dean Witter Spectrum
Series of funds, comprised of the Partnership, Morgan Stanley
Dean Witter Spectrum Global Balanced L.P. ("Spectrum Global
Balanced"), Morgan Stanley Dean Witter Spectrum Strategic L.P.
("Spectrum Strategic") 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. ("Carr"), provides clearing
and execution services.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Both Demeter and DWR are wholly-owned subsidiaries of Morgan
Stanley Dean Witter & Co. ("MSDW").
The trading advisors to the Partnership are Campbell & Company,
Inc., Chesapeake Capital Corporation, and John W. Henry &
Company, Inc., (collectively, the "Trading Advisors").
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in futures
interests trading accounts to meet margin requirements as needed.
DWR pays interest on these funds based on a prevailing rate on
U.S. Treasury bills. The Partnership pays brokerage fees to DWR.
3. Financial Instruments
The Partnership trades futures, forward and options contracts on
physical commodities and other commodities interests, including
foreign currencies, financial instruments, precious and
industrial metals, energy products and agriculturals. Futures
and forwards represent contracts for delayed delivery of an
instrument at a specified date and price. Risk arises from
changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the
contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership has elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year ended December 31, 1998. SFAS No.
133 supersedes SFAS No. 119 and No. 105, which required the
disclosure of average aggregate fair values and contract/notional
values, respectively, of derivative financial instruments for an
entity which carries its assets at fair value. The application
of SFAS No. 133 does not have a significant effect on the
Partnership's financial statements.
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statements of Financial Condition and totaled $11,178,151 and
$18,909,268 at March 31, 1999 and December 31, 1998,
respectively.
Of the $11,178,151 net unrealized gain on open contracts at March
31, 1999, $9,566,810 related to exchange-traded futures contracts
and $1,611,341 related to off-exchange-traded forward currency
contracts.
Of the $18,909,268 net unrealized gain on open contracts at
December 31, 1998, $19,606,697 related to exchange-traded futures
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
contracts and $(697,429) related to off-exchange-traded forward
currency contracts.
Exchange-traded futures contracts held by the Partnership at
March 31, 1999 and December 31, 1998 mature through March 2000
and December 1999, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at March 31, 1999 and
December 31, 1998 mature through June 1999 and March 1999,
respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial Condition. DWR and Carr act as the futures commission
merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures and futures-styled
options contracts are marked to market on a daily basis, with
variations in value settled on a daily basis. Each of DWR and
Carr, as a futures commission merchant for all of the
Partnership's exchange-traded futures and futures-styled options
contracts, are required, pursuant to regulations of the Commodity
Futures Trading Commission ("CFTC") to segregate from their own
assets, and for the sole benefit of their commodity customers,
all funds held by them with respect to exchange-traded futures
and futures-styled
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 $250,117,453
and $254,651,022 at March 31, 1999 and December 31, 1998,
respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of Carr, the
sole counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from
time to time, be illiquid. Most United States futures exchanges
limit fluctuations in certain futures interest prices during a
single day by regulations referred to as "daily price
fluctuations limits" or "daily limits". Pursuant to such
regulations, during a single trading day no trades may be
executed at prices beyond the daily limit. If the price for a
particular futures interest has increased or decreased by an
amount equal to the daily limit, positions in such futures
interest can neither be taken nor liquidated unless traders are
willing to effect trades at or within the limit. Futures
interests prices have occasionally moved the daily limit for
several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly
liquidating its futures interests and result in restrictions on
redemptions.
<PAGE>
There is no limitation on daily price moves in trading
forward contracts on foreign currency. The markets for some
world currencies have low trading volume and are illiquid, which
may prevent the Partnership from trading in potentially
profitable markets or from promptly liquidating unfavorable
positions, subjecting it to substantial losses. Either of these
market conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions,
exchanges and sales of additional Units of Limited Partnership
Interest ("Unit(s)") will affect the amount of funds available
for investment in futures interests in subsequent periods. Since
they are at the discretion of Limited Partners, it is not
possible to estimate the amount and therefore, the impact of
future redemptions, exchanges or sales of additional Units.
Results of Operations
For the Quarter Ended March 31, 1999
For the quarter ended March 31, 1999, the Partnership recorded
total trading losses net of interest income of $5,812,374 and
posted a decrease in Net Asset Value per Unit. The most
significant losses were recorded in the global interest rate
futures markets early in the quarter from short Japanese
government bond futures positions as prices surged higher in
response to the Bank of Japan's aggressive easing of monetary
policy which brought short-term interest rates down to virtually
zero. Additional losses were experienced later in the quarter
<PAGE>
from newly established long positions as prices retreated
following comments by Bank of Japan Governor Masaru Hayami that
he expected interest rates in Japan to rise over time. In the
metals markets, losses were experienced from long silver futures
positions as prices declined during mid-March after Berkshire
Hathaway's annual report failed to provide any new information on
the company's silver positions. In the livestock markets, losses
were recorded during January from short cattle and hog futures
positions as prices in both markets moved sharply higher on
concerns that winter storms would hurt supplies, on reports of an
increase in demand and plans for government aid programs to help
aid struggling farmers. In soft commodities, losses were
experienced during January from long coffee futures positions as
prices dropped on fears spurred by the collapse of the Brazilian
real. In the global stock index futures markets, losses were
recorded from long positions in German stock index futures as
European equity prices moved lower amid rising global bond yields
and skepticism regarding the stability of emerging market
economies. These losses were partially offset by gains recorded
in the energy markets during March from long futures positions in
crude oil and its refined products, unleaded gas and heating oil,
as oil prices moved significantly higher. The substantial
recovery in oil prices during March was largely attributed to the
news that both OPEC and non-OPEC countries had reached an
agreement to cut total output by approximately two million
barrels a day beginning April 1st. In the currency markets,
gains were recorded during February and March from short Swiss
franc positions as its value weakened versus the U.S. dollar as
<PAGE>
investors reasoned that the United States is the safest place to
invest during the crisis in Kosovo due to the fact that it is
geographically removed from the actual conflict and possesses a
powerful military force and on lack of economic growth in Europe.
Gains were also recorded during January and February from short
positions in the euro as the value of the common European
currency fell versus the U.S. dollar. The euro's weakness
against the dollar was attributed to fears that the European
Central Bank may cut interest rates amid a recent economic
slowdown in that region. In the agricultural markets, gains were
recorded during January and February from short futures positions
in soybeans and soybean oil as prices trended steadily lower amid
a healthy South American crop, weak world demand and fears that
Brazil will flood the market in an effort to aid their ailing
economy. Total expenses for the three months ended March 31,
1999 were $7,115,151, resulting in a net loss of $12,927,525.
The value of a Unit decreased from $16.12 at December 31, 1998 to
$15.31 at March 31, 1999.
For the Quarter Ended March 31, 1998
For the quarter ended March 31, 1998, the Partnership recorded
total trading revenues including interest income of $6,643,770
and posted an increase in Net Asset Value per Unit. The most
significant gains were recorded from long European interest rate
futures positions, particularly German and French interest rate
futures, as prices in these markets trended higher throughout a
majority of the quarter. Additional profits were recorded from
long positions in European and U.S. stock index futures as prices
<PAGE>
in these markets climbed higher for the first three months of the
year. In energies, gains were recorded from short crude and
heating oil futures positions as oil prices declined during
January and early February as tensions eased in the Middle East.
Short livestock futures positions profited during February as
prices in these markets also moved lower. These gains were
partially offset by losses recorded during January from short
positions in gold futures, as prices reversed higher, and from
long gold futures positions during March as gold prices subsided.
In currencies, losses were experienced from short positions in
the Japanese yen during January and February as the value of the
yen increased versus the U.S. dollar after weakening previously.
These losses were partially offset by gains from short Swiss
franc and German mark positions as the value of the U.S. dollar
strengthened versus these currencies during March. Total
expenses for the three months ended March 31, 1998 were
$5,551,058, resulting in net income of $1,092,712. The value of
a Unit increased from $14.63 at December 31, 1997 to $14.71 at
March 31, 1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
<PAGE>
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 Advisors - could result in a material financial risk to
the Partnership. All U.S. futures exchanges are subject to
monitoring by the CFTC of their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject
to market-wide testing of their Year 2000 compliance during 1999.
Demeter intends to monitor the progress of Carr and the Trading
Advisors throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Advisors.
A worst case scenario would be one in which trading of
contracts on behalf of the Partnership becomes impossible as a
<PAGE>
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 Advisors from trading in certain
currencies and thereby limits their ability to take advantage of
potential market opportunities that might otherwise have existed
had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market sensitive
<PAGE>
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
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the
Partnership's market risk must be qualified by the inherent
uncertainty of its speculative trading, which may cause future
losses and volatility (i.e. "risk of ruin") far in excess of the
<PAGE>
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are
deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.
The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
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 Advisors 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
<PAGE>
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
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 Advisors in their daily risk management activities.
<PAGE>
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total net assets
by market category as of March 31, 1999. As of March 31, 1999,
the Partnership's total capitalization was approximately $253
million.
Primary Market March 31, 1999
Risk Category Value at Risk
Interest Rate (1.25)%
Currency (2.58)
Equity (1.15)
Commodity (0.83)
Aggregate Value at Risk (3.17)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at March 31, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole business
is the speculative trading of primarily futures interests, the
composition of its portfolio of open positions can change
significantly over any given time period or even within a single
trading day. Such changes in open positions could materially
impact
<PAGE>
market risk as measured by VaR either positively or negatively.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
net assets for the four quarterly reporting periods from April 1,
1998 through March 31, 1999.
Primary Market Risk Category High Low Average
Interest Rate (2.08)% (1.25)% (1.65)%
Currency (2.58) (0.68) (1.68)
Equity (1.15) (0.43) (0.65)
Commodity (0.83) (0.54) (0.67)
Aggregate Value at Risk (3.17)% (1.60)% (2.62)%
% %
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin require-
ments, as such margin requirements generally range between 2% and
15% of contract face value. Additionally, due to the use of
leverage, the face value of the market sector instruments held by
the Partnership is typically many times the total capitalization of
the Partnership. The financial magnitude of the Partnership's open
positions thus creates a "risk of ruin" not typically found in
other investment vehicles. Due to the relative size of the
positions held, certain market conditions may cause the Partnership
to incur losses greatly in excess of VaR within a short period of
time. The foregoing VaR tables, as well as the past performance of
the Partnership, gives no indication of such "risk of ruin". In
<PAGE>
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 March 31, 1999 and for the
end of the four quarterly reporting periods from April 1, 1998
through March 31, 1999. Since VaR is based on historical data, VaR
should not be viewed as predictive of the Partnership's future
financial performance or its ability to manage and monitor risk and
there can be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well as
any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
81%) of its
<PAGE>
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 Advisors
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially
from the objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk
<PAGE>
exposures and the risk management strategies of the Partnership.
Investors must be prepared to lose all or substantially all of
their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of March 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. Interest rate risk is the principal market
exposure of the Partnership. Interest rate movements directly
affect the price of the sovereign bond futures positions held by
the Partnership and indirectly the value of its stock index and
currency positions. Interest rate movements in one country as well
as relative interest rate movements between countries materially
impact the Partnership's profitability. The Partnership's primary
interest rate exposure is to interest rate fluctuations in the
United States and the other G-7 countries. However, the
Partnership also takes futures positions in the government debt of
smaller nations - e.g. Australia. Demeter anticipates that G-7
interest rates will remain the primary market exposure of the
Partnership for the foreseeable future. The changes in interest
rates which have the most effect on the Partnership are changes in
long-term, as opposed to short-term, rates. Most of the
speculative futures positions held by the Partnership are in medium-
to-long term instruments. Consequently, even a material change in
short-term rates would have little effect on the Partnership were
the medium-to-long term rates to remain steady.
<PAGE>
Currency. The Partnership's currency exposure is to exchange
rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and
currency pairs. These fluctuations are influenced by interest rate
changes as well as political and general economic conditions. The
Partnership trades in a large number of currencies, including cross-
rates - i.e., positions between two currencies other than the U.S.
dollar. However, the Partnership's major exposures have typically
been in the dollar/yen, dollar/mark, dollar/euro, dollar/Swiss
franc and dollar/pound positions. Demeter does not anticipate that
the risk profile of the Partnership's currency sector will change
significantly in the future, although it is difficult at this point
to predict the effect of the introduction of the Euro on the
Trading Advisors' currency trading strategies.
Equity. The Partnership's primary equity exposure is to
equity price risk in the G-7 countries. The stock index futures
traded by the Partnership are by law limited to futures on broadly
based indices. As of March 31, 1999, the Partnership's primary
exposures were in the Nikkei (Japan), S&P 500, All Ordinaries
(Australia) and Financial Times (England) stock indices. Demeter
anticipates little, if any, trading in non-G-7 stock indices. The
Partnership is primarily exposed to the risk of adverse price
trends or static markets in the major U.S., European and Japanese
indices. (Static markets would not cause major market changes but
would make it difficult for the Partnership to avoid being
"whipsawed" into numerous small losses).
<PAGE>
Commodity.
Metals. The Partnership's primary metals market exposure is
to fluctuations in the price of gold and silver. Although certain
Trading Advisors will from time to time trade base metals such as
copper, aluminum, nickel, zinc, lead, and tin, the principal market
exposures of the Partnership have consistently been in the precious
metals, gold and silver (and, to a lesser extent, platinum). The
Trading Advisors' gold trading has been increasingly limited due to
the long-lasting and mainly non-volatile decline in the price of
gold over the last 10-15 years. However, silver prices have
remained volatile over this period, and the Trading Advisors have
from time to time taken substantial positions as they have
perceived market opportunities to develop. Demeter anticipates that
gold and silver will remain the primary metals market exposure for
the Partnership.
Soft Commodities and Agriculturals. The Partnership's primary
commodities exposure is to fluctuations in the price of soft
commodities and agriculturals which are often directly affected by
severe or unexpected weather conditions. Soybeans, corn, and sugar
accounted for the substantial bulk of the Partnership's commodities
exposure at March 31, 1999. The Partnership has market exposure to
live cattle and lean hogs. However, Demeter anticipates that the
Trading Advisors will maintain an emphasis on soybeans, corn, and
sugar, in which the Partnership has historically taken it's largest
positions.
Energy. The Partnership's primary energy market exposure is
to gas and oil price movements, often resulting from political
<PAGE>
developments in the Middle East. Although the Trading Advisors
trade natural gas to a limited extent, oil is by far the dominant
energy market exposure of the Partnership. Oil prices are
currently depressed, but they can be volatile and substantial
profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at March 31, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in Swiss francs, euros, British pounds,
Japanese yen, and Canadian dollars. The Partnership controls the
non-trading risk of these balances by regularly converting these
balances back into U.S. dollars at varying intervals, depending
upon such factors as size, volatility, etc.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisors,
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 Trading
Advisors, each of whose strategies focus on different market
sectors and trading approaches, and (ii), monitoring the
performance of the Trading Advisors on a daily basis. In addition,
the Trading Advisors establish diversification guidelines, often
set in terms of
<PAGE>
the maximum margin to be committed to positions in any one market
sector or market sensitive instrument. One should be aware that
certain Trading Advisors treat their risk control policies as
strict rules, whereas others treat such policies as general
guidelines.
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 Advisors.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in Item 3. of the Partnership's 1998 Form 10-K:
On April 12, 1999, the defendants filed a motion in the
California action to oppose certification by the court of the
class in the California litigation.
With respect to JWH, the New York Supreme Court complaint was
dismissed with prejudice when the plaintiffs failed to replead
against JWH in December, 1998. Further, JWH has been dismissed as
a defendant in the California actions without prejudice pursuant to
a tolling agreement with plaintiffs executed in January, 1999.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership, Spectrum Strategic and Spectrum Global Balanced
L.P., 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 to the Partnership,
Spectrum Strategic and Spectrum Global Balanced at that time, they
were subsequently allocated for convenience purposes as follows:
the Partnership 4,000,000, Spectrum Strategic 4,000,000 and
Spectrum Global Balanced 2,000,000. The Partnership, Spectrum
Strategic and Spectrum Global Balanced collectively registered an
additional 20,000,000 Units pursuant to a new Registration
Statement on Form
<PAGE>
S-1, which became effective on January 31, 1996 (SEC File Number
333-00494); such units were allocated among the Spectrum Series as
follows: the Partnership 9,000,000, Spectrum Strategic 6,000,000
and Spectrum Global Balanced 5,000,000. The Partnership, Spectrum
Strategic and Spectrum Global Balanced collectively registered an
additional 8,500,000 Units pursuant to another Registration
Statement on Form S-1, which became effective on April 30, 1996
(SEC File Number 333-3222); such Units were allocated to the
Partnership, Spectrum Strategic and Spectrum Global Balanced as
follows: the Partnership 5,000,000, Spectrum Strategic 2,500,000
and Spectrum Global Balanced 1,000,000. The Partnership registered
an additional 5,000,000 Units pursuant to another Registration
Statement on Form S-1, which became effective on May 11, 1998 (SEC
File Number 333-47831).
Effective January 21, 1999, 10,000,000 additional Units were
registered pursuant to a Registration Statement on Form S-1 (File
No. 333-68779). The managing underwriter for the Morgan Stanley
Dean Witter Spectrum series is DWR.
Units are being sold at monthly closings as of the last day of each
month at a price equal to 100% of the Net Asset Value of a Unit as
of the date of such monthly closing.
Through March 31, 1999, 19,665,720.591 Units were sold, leaving
13,334,279.409 Units unsold as of March 31, 1999. The aggregate
price of the Units sold through March 31, 1999 is $255,908,749.
<PAGE>
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.
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
Technical L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
May 14, 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 Technical L.P. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 240,550,643
<SECURITIES> 0
<RECEIVABLES> 5,912,656<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 257,641,450<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 257,641,450<F3>
<SALES> 0
<TOTAL-REVENUES> (5,812,374)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,115,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,927,525
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,927,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,927,525
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscriptions receivable of $5,191,582 and
interest receivable of $721,074.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $11,178,151.
<F3>Liabilities include redemptions payable of $2,492,877,
accrued brokerage fees of $1,549,645 and accrued management fees of
$854,976.
<F4>Total revenue includes realized trading revenue of $(176,028),
net change in unrealized of $(7,731,117) and interest income of
$2,094,771.
</FN>
</TABLE>
