UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-26338
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
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
June 30, 1999 (Unaudited) and December 31, 1998.......2
Statements of Operations for the Quarters Ended
June 30, 1999 and 1998 (Unaudited)....................3
Statements of Operations for the Six Months Ended
June 30, 1999 and 1998 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 1999 and 1998
(Unaudited)...........................................5
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 (Unaudited)....................6
Notes to Financial Statements (Unaudited)..........7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..12-21
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ...................................22-33
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................34
Item 2. Changes in Securities and Use of Proceeds......34-36
Item 6. Exhibits and Reports on Form 8-K..................36
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 257,770,535 235,044,325
Net unrealized gain on open contracts 20,659,113 18,
909,268
Total Trading Equity 278,429,648 253,953,593
Subscriptions receivable 4,610,252 4,002,633
Interest receivable (DWR) 780,509 717,685
Total Assets 283,820,409 258,673,911
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,825,402 1,339,311
Accrued brokerage fees (DWR) 1,587,941 1,439,151
Accrued management fees 876,105 794,015
Incentive fees payable 430,097 -
Total Liabilities 4,719,545 3,572,477
Partners' Capital
Limited Partners (16,857,669.916 and
15,660,041.764 Units, respectively) 276,240,957 252
,455,045
General Partner (174,526.485 and
164,158.204 Units, respectively) 2,859,907 2,
646,389
Total Partners' Capital 279,100,864 255,101,434
Total Liabilities and Partners' Capital 283,820,409 258,
673,911
NET ASSET VALUE PER UNIT 16.39
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 June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 14,016,224 8,030,269
Net change in unrealized 9,480,962 (9,336,669)
Total Trading Results 23,497,186 (1,306,400)
Interest Income (DWR) 2,285,240 1,981,985
Total Revenues 25,782,426 675,585
EXPENSES
Brokerage fees (DWR) 4,766,147 3,688,694
Management fees 2,629,598 1,964,210
Incentive fees 430,097 -
Total Expenses 7,825,842 5,652,904
NET INCOME (LOSS) 17,956,584 (4,977,319)
NET INCOME (LOSS) ALLOCATION
Limited Partners
17,768,474 (4,926,312)
General Partner
188,110 (51,007)
NET INCOME (LOSS) PER UNIT
Limited Partners
1.08 (.38)
General Partner
1.08 (.38)
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 13,840,196 17,820,196
Net change in unrealized 1,749,845 (14,343,353)
Total Trading Results 15,590,041 3,476,843
Interest Income (DWR) 4,380,011 3,842,512
Total Revenues 19,970,052 7,319,355
EXPENSES
Brokerage fees (DWR) 9,351,466 7,196,245
Management fees 5,159,430 3,798,223
Incentive fees 430,097 209,494
Total Expenses 14,940,993 11,203,962
NET INCOME (LOSS) 5,029,059 (3,884,607)
NET INCOME (LOSS) ALLOCATION
Limited Partners 4,975,541 (3,844,633)
General Partner
53,518 (39,974)
NET INCOME (LOSS) PER UNIT
Limited Partners
.27 (.30)
General Partner
.27 (.30)
<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 Six Months Ended June 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C>
<C> <C>
Partners' Capital,
December 31, 1997 12,434,700.738 $180,099,271 $1,851,236
$181,950,507
Continuous Offering 2,668,929.357 38,097,664 295,000
38,392,664
Net Loss - (3,844,633) (39,974)
(3,884,607)
Redemptions (736,614.949) (10,634,648) -
(10,634,648)
Partners' Capital,
June 30, 1998 14,367,015.146 $203,717,654 $2,106,262
$205,823,916
Partners' Capital,
December 31, 1998 15,824,199.968 $252,455,045 $2,646,389
$255,101,434
Continuous Offering1,984,286.976 31,086,987 160,000
31,246,987
Net Income - 4,975,541 53,518
5,029,059
Redemptions (776,290.543) (12,276,616) -
(12,276,616)
Partners' Capital,
June 30, 1999 17,032,196.401 $276,240,957 $2,859,907
$279,100,864
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 5,029,059 (
3,884,607)
Noncash item included in net income (loss):
Net change in unrealized (1,749,845) 1
4,343,353
Increase in operating assets:
Interest receivable (DWR) (62,824) (64,035)
Net option premiums - (
119,830)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (DWR) 148,790 132,819
Accrued management fees 82,090 104,877
Incentive fees payable 430,097
(139,190)
Net cash provided by operating activities 3,877,367
10,373,387
CASH FLOWS FROM FINANCING ACTIVITIES
Continuous offering 31,246,987 3
8,392,664
Increase in subscriptions receivable (607,619)
(3,780,532)
Increase in redemptions payable 486,091
1,135,303
Redemptions of units (12,276,616)
(10,634,648)
Net cash provided by financing activities 18,848,843
25,112,787
Net increase in cash 22,726,210 3
5,486,174
Balance at beginning of period 235,044,325
168,849,922
Balance at end of period 257,770,535
204,336,096
<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. (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 primarily in the speculative
trading of futures, forward and options contracts on physical
commodities and other commodity interests, including foreign
currencies, financial instruments, precious and industrial
metals, energy products and agriculturals (collectively, "futures
interests"). The Partnership is one of the Morgan Stanley Dean
Witter Spectrum Series of funds, comprised of the Partnership,
Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan
Stanley Dean Witter Spectrum Strategic L.P. and Morgan Stanley
Dean Witter Spectrum Select L.P. The general partner is Demeter
Management Corporation ("Demeter"). The non-clearing commodity
broker is Dean Witter Reynolds Inc. ("DWR"), and an unaffiliated
clearing commodity broker, Carr Futures Inc. ("Carr"), provides
clearing and execution services. Both Demeter and DWR are wholly-
owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW").
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 commodity interests, including
foreign currencies, financial instruments, precious and
industrial metals, energy products and agriculturals. Futures
and forwards represent contracts for delayed delivery of an
instrument at a specified date and price. Risk arises from
changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the
contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM 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 elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year that ended December 31, 1998.
SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required
the disclosure of average aggregate fair values and
contract/notional values, respectively, of derivative financial
instruments for an entity which carries its assets at fair value.
The application of SFAS No. 133 does not have a significant
effect on the Partnership's financial statements.
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statements of Financial Condition and totaled $20,659,113 and
$18,909,268 at June 30, 1999 and December 31, 1998, respectively.
Of the $20,659,113 net unrealized gain on open contracts at June
30, 1999, $20,520,013 related to exchange-traded futures and
futures-styled options contracts and $139,100 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)
and futures-styled option contracts and $(697,429) related to off-
exchange-traded forward currency contracts.
Exchange-traded futures and futures-styled option contracts held
by the Partnership at June 30, 1999 and December 31, 1998 mature
through June 2000 and December 1999, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at June
30, 1999 and December 31, 1998 mature through September 1999 and
March 1999, respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial Condition. DWR and Carr act as the futures commission
merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures and futures-styled
options contracts are marked to market on a daily basis, with
variations in value settled on a daily basis. Each of DWR and
Carr, as a futures commission merchant for all of the
Partnership's exchange-traded futures and futures-styled options
contracts, are required, pursuant to regulations of the Commodity
Futures Trading Commission ("CFTC") to segregate from their own
assets, and for the sole benefit of their commodity customers,
all funds held by
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
them with respect to exchange-traded futures and futures-styled
options contracts, including an amount equal to the net
unrealized gain on all open futures and futures-styled options
contracts, which funds, in the aggregate, totaled $278,290,548
and $254,651,022 at June 30, 1999 and December 31, 1998,
respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of Carr, the
sole counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions,
exchanges and sales of additional Units of Limited Partnership
Interest ("Unit(s)") will affect the amount of funds available
for investment in futures interests in subsequent periods. Since
they are at the discretion of Limited Partners, it is not
possible to estimate the amount and therefore, the impact of
future redemptions, exchanges or sales of additional Units.
Results of Operations
For the Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $25,782,426
and posted an increase in Net Asset Value per Unit. The most
significant gains were recorded from short positions in U.S.
interest rate futures as prices in this market declined
throughout the quarter on inflationary fears and the possibility
of interest rate hikes in the U.S. Additional gains were
recorded from long positions in Japanese government bond futures
as prices increased during the first half of the quarter when the
<PAGE>
government proposed no new economic spending plans and on bearish
comments by a Senior Finance official. Gains were also recorded
during the second half of the quarter from newly established
short positions as Japanese bond prices reversed lower on a more
favorable outlook for that country's economy. In the currency
markets, profits were recorded from short positions in the Swiss
franc and the European common currency as the value of the franc
and euro declined versus the U.S. dollar during the quarter. The
weakness in these European currencies relative to the U.S. dollar
was attributed primarily to concerns regarding European economic
growth, the crisis in Yugoslavia and potentially widening
interest rate differentials with the U.S. Gains were also
recorded in the global stock index futures markets from long
positions in Nikkei Index futures as prices surged during April
on optimism that the Japanese government would take more measures
to stimulate their economy and during June on news that Japan's
gross domestic product had grown much more than recent market
expectations. In the energy markets, gains were recorded during
April and June from long positions in crude oil futures as oil
prices rose on signs of better demand, particularly from Asia, a
decline in inventory levels and signs that OPEC member states
were respecting output cuts. A portion of the Partnership's
overall gains for the quarter was offset by losses experienced in
the soft commodities markets from long coffee futures positions
as prices plummeted during June on the news of a bearish
Commitments of Traders report and on forecasts for warmer
temperatures in Brazil. Losses were also experienced in the
metals markets during May from long positions in copper futures
<PAGE>
as prices moved lower as a result of a technical sell-off and as
highly anticipated production cuts failed to materialize.
Additional losses were recorded during June due to a reduction in
LME warehouse stocks. Total expenses for the three months ended
June 30, 1999 were $7,825,842, resulting in net income of
$17,956,584. The value of a Unit increased from $15.31 at March
31, 1999 to $16.39 at June 30, 1999.
For the six months ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $19,970,052
and posted an increase in Net Asset Value per Unit. The most
significant gains were recorded in the currency markets from
short positions in the Swiss franc and the European common
currency as the value of the franc and euro declined versus the
U.S. dollar throughout most of the year. The weakness in these
European currencies relative to the U.S. dollar was largely
attributed to concerns regarding European economic growth and
potentially widening interest rate differentials between Europe
and the U.S. Investors also sold francs and euros for dollars
during the first half of the year in response to the crisis in
Yugoslavia on the rationale that the United States was the safest
place to invest during the crisis in Kosovo. In the energy
markets, gains were recorded from long positions in crude oil
futures as oil prices moved considerably higher during March,
April and June. The substantial recovery in oil prices during
the first half of the year was largely attributed to the news of
a decline in inventory levels that resulted from an agreement
reached by both OPEC and non-OPEC countries to cut total output.
Additional profits were
<PAGE>
recorded during February and most of the second quarter from
short positions in U.S. bond futures as prices in this market
declined on strong domestic economic data, inflationary fears and
the possibility of interest rate hikes. Gains were also recorded
in the global stock index futures markets from long positions in
Nikkei Index futures as prices surged on positive economic
factors in Japan during March, optimism during April that the
Japanese government would take more measures to stimulate their
economy and on news during June that Japan's gross domestic
product had grown much more than recent market expectations. In
the agricultural markets, gains were recorded during January,
February and May from short futures positions in soybeans and
soybean oil as prices trended steadily lower amid a healthy South
American crop, fears that Brazil will flood the market in an
effort to aid their ailing economy and on a bearish USDA supply-
demand report. A portion of the Partnership's overall gains for
the year were offset by losses experienced in the metals markets
particularly during the month of March from long silver futures
positions as prices declined during mid-month after Berkshire
Hathaway's annual report failed to provide any new information on
the company's silver positions. Additional losses were
experienced in the soft commodities markets from long coffee
futures positions as prices dropped during January on fears
spurred by the collapse of the Brazilian real and during June
amid warmer temperatures in Brazil and abundant supplies.
Smaller losses were recorded in the livestock markets from short
positions in live cattle futures during January as prices moved
sharply higher on concerns that winter storms would hurt
supplies, as well as during late May and early June on
<PAGE>
stronger-than-expected demand. Total expenses for the six months
ended June 30, 1999 were $14,940,993, resulting in net income of
$5,029,059. The value of a Unit increased from $16.12 at
December 31, 1998 to $16.39 at June 30, 1999.
For the Quarter and Six Months Ended June 30, 1998
For the quarter ended June 30, 1998, the Partnership recorded
total trading revenues including interest income of $675,585 and
after expenses posted a loss in Net Asset Value per Unit. The
most significant net trading losses were recorded in financial
futures from long positions in Australian government bond futures
as prices reversed lower in April and again in early June after
moving higher previously. Smaller losses were recorded as a
result of short-term price volatility in U.S. interest rate
futures during April and in British interest rate futures during
May. A portion of these losses was offset by gains from long
positions in Japanese government bond futures during May, as
prices moved higher in reaction to declining interest rate yields
in Japan, and in German stock index futures throughout the
quarter. In metals, losses were recorded from long positions in
gold futures during April and May as gold prices declined. These
losses coupled with smaller losses recorded from long copper
futures positions during May more than offset profits recorded
from short aluminum futures positions throughout the quarter.
Smaller losses were recorded in agricultural futures during June
from short positions in soybean, corn and soybean meal futures as
prices reversed higher following a profitable downward price move
during April and May. A portion of the Partnership's overall
<PAGE>
losses for the quarter was offset by gains from short coffee
futures positions as coffee prices moved lower during April and
June. Smaller gains were recorded in soft commodities from short
sugar futures positions as sugar prices declined during April and
May. In the energy markets, profits recorded during May and June
from short crude oil futures positions helped to mitigate the
Partnership's overall losses for the quarter. In currencies,
gains recorded from short positions in the Japanese yen, South
African rand and Australian dollar, as the value of these
currencies trended significantly lower versus the U.S. dollar
during a majority of the quarter, more than offset losses
experienced from short-term volatility in most major European
currencies. Total expenses for the three months ended June 30,
1998 were $5,652,904, resulting in a net loss of $4,977,319. The
value of a Unit decreased from $14.71 at March 31, 1998 to $14.33
at June 30, 1998.
For the six months ended June 30, 1998, the Partnership recorded
total trading revenues including interest income of $7,319,355
and after expenses posted a decrease in Net Asset Value per Unit.
The most significant net trading losses were experienced in the
metals markets from long gold futures positions as gold prices
moved lower during March, April and May. Additional losses were
recorded during January from short gold futures positions as
prices moved higher. Smaller losses were recorded from long
copper futures positions during May as prices in this market
moved lower. In currencies, losses were experienced from
transactions involving the British pound as its value moved
without consistent
<PAGE>
direction for a majority of the year, particularly during May and
June. Smaller currency losses were recorded from transactions
involving the German mark as its value also moved in a short-term
volatile pattern relative to other world currencies during the
second quarter. These losses were partially offset by gains from
short crude and heating oil futures positions as oil prices
declined during January and early February as tensions eased in
the Middle East. These short positions were also profitable
during May and June as prices continued to move lower following a
brief spike higher during late March and early April. Additional
gains were recorded in financial futures from long positions in
German and French bond and stock index futures as prices in these
markets trended higher during a majority of the first six months
of the year. Gains recorded in soft commodities during April and
June from short coffee futures positions also helped to offset a
portion of the overall Partnership losses for the first half of
the year. Total expenses for the six months ended June 30, 1998
were $11,203,962, resulting in a net loss of $3,884,607. The
value of a Unit decreased from $14.63 at December 31, 1997 to
$14.33 at June 30, 1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
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
<PAGE>
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter.
It has developed its own Year 2000 compliance plan to deal with
the problem and had the plan approved by the company's executive
management, Board of Directors and Information Technology
Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that
affect the Partnership. This includes hardware and software
upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or the
Trading 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
<PAGE>
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 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.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of
market sensitive instruments is integral, not incidental, to the
Partnership's primary business activities.
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned factors result in frequent changes
in the fair value of the Partnership's open positions, and,
consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification effects among
the Partnership's existing open positions, the volatility present
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.
<PAGE>
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the Partner-
ship's market risk must be qualified by the inherent uncertainty
of its speculative trading, which may cause future losses and
volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
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.
<PAGE>
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
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
<PAGE>
purposes only and is not utilized by either Demeter or the
Trading Advisors in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by market category as of June 30, 1999. As of June 30, 1999, the
Partnership's total capitalization was approximately $279
million.
Primary Market June 30, 1999
Risk Category Value at Risk
Interest Rate (2.11)%
Currency (2.36)
Equity (1.02)
Commodity (0.86)
Aggregate Value at Risk (3.80)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at June 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can
<PAGE>
change significantly over any given time period or even within a
single trading day. Such changes in open positions could
materially impact market risk as measured by VaR either positively
or negatively.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
Net Assets for the four quarterly reporting periods from July 1,
1998 through June 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (2.11)% (1.25)% (1.67)%
Currency (2.58) (0.68) (1.86)
Equity (1.15) (0.43) (0.77)
Commodity (0.86) (0.54) (0.71)
Aggregate Value at Risk (3.80)% (1.60)% (2.81)%
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
<PAGE>
foregoing VaR tables, as well as the past performance of the
Partnership, gives no indication of such "risk of ruin". In
addition, VaR risk measures should be interpreted in light of the
methodology's limitations, which include the following: past
changes in market risk factors will not always yield accurate
predictions of the distributions and correlations of future market
movements; changes in portfolio value in response to market
movements may differ from the responses implicit in a VaR model;
published VaR results reflect past trading positions while future
risk depends on future positions; VaR using a one-day time horizon
does not fully capture the market risk of positions that cannot be
liquidated or hedged within one day; and the historical market risk
factor data used for VaR estimation may provide only limited
insight into losses that could be incurred under certain unusual
market movements.
The foregoing VaR tables present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at June 30, 1999 and for the end of the four
quarterly reporting periods from July 1, 1998 through June 30,
1999. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage and monitor risk and there can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
<PAGE>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well as
any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
80%) of its available assets in cash at DWR. A decline in short-
term interest rates will result in a decline in the Partnership's
cash management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account the
leverage, optionality and multiplier features of the Partnership's
market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. The
Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading 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,
<PAGE>
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of June 30, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The primary trading risk market exposure in
the Partnership is in the interest rate sector. Exposure was
spread across the U.S., German, Japanese, British and Australian
interest rate sectors at June 30, 1999. Interest rate movements
directly affect the price of the sovereign bond futures positions
held by the Partnership and indirectly affect the value of its
stock index and currency positions. Interest rate movements in
one country as well as relative interest rate movements between
countries materially impact the Partnership's profitability. The
Partnership's primary interest rate exposure is generally to
interest rate fluctuations in the United States and the other G-7
countries. However, the Partnership also takes futures positions
in the government debt of smaller nations - e.g. Australia.
Demeter anticipates that G-7 and Australian interest rates will
<PAGE>
remain the primary interest rate exposure of the Partnership for
the foreseeable future. The changes in interest rates, which
have the most effect on the Partnership, are changes in long-
term, as opposed to short-term, rates. Most of the speculative
futures positions held by the Partnership are in medium-to-long
term instruments. Consequently, even a material change in short-
term rates would have little effect on the Partnership, were the
medium-to-long term rates to remain steady.
Currency. The second largest market exposure at June 30,
1999 was in the currency complex. The Partnership's currency
exposure is to exchange rate fluctuations, primarily fluctuations
which disrupt the historical pricing relationships between
different currencies and currency pairs. Interest rate changes
as well as political and general economic conditions influence
these fluctuations. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two
currencies other than the U.S. dollar. For the second quarter of
1999, the Partnership's major exposures were in the Euro currency
crosses and outright U.S. dollar positions. (Outright positions
consist of the U.S. dollar vs. other currencies. These other
currencies include the major and minor currencies). Demeter does
not anticipate that the risk profile of the Partnership's
currency sector will change significantly in the future. The
currency trading VaR figure includes foreign margin amounts
converted into U.S. dollars with an incremental adjustment to
reflect the exchange rate risk inherent to the dollar-based
<PAGE>
Partnership in expressing VaR in a functional currency other than
dollars.
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 June 30, 1999, the Partnership's
primary exposures were in the Nikkei (Japan), DAX (German) and
S&P 500 (U.S.) stock indices. The Partnership is primarily
exposed to the risk of adverse price trends or static markets in
the U.S., European and Japanese indices. (Static markets would
not cause major market changes but would make it difficult for
the Partnership to avoid being "whipsawed" into numerous small
losses).
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 aluminum, copper, nickel, zinc, tin and lead, the
principal market exposures of the Partnership have consistently
been in precious metals, gold and silver (and, to a much 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.
<PAGE>
Demeter anticipates that gold and silver will remain the
primary metals market exposure for the Partnership.
Energy. On June 30, 1999, the Partnership's energy exposure
was shared by futures contracts in the oil and natural gas
markets. Price movements in these markets result from political
developments in the Middle East, weather patterns, and other
economic fundamentals. As oil prices have broken out of low
price ranges achieved in 1998, it is possible that volatility
will increase as well. Significant profits and losses have been
and are expected to continue to be experienced in this market.
Natural gas, also a primary energy market exposure, has exhibited
more volatility than the oil markets on an intra-day and daily
basis and is expected to continue in this choppy pattern.
Soft Commodities and Agriculturals. On June 30, 1999, the
Partnership had a reasonable amount of exposure in the markets
that comprise these sectors. Most of the exposure, however, was
in the sugar, soybean, coffee and corn markets. Supply and
demand inequalities, severe weather disruption and market
expectations affect price movements in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of June 30, 1999:
<PAGE>
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros, Swiss francs, Japanese yen,
British pounds and Australian dollars. The Partnership controls
the non-trading risk of these balances by regularly converting
these balances back into dollars upon liquidation of the
respective position.
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 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 the Partnership's 1998 Form 10-K:
With respect to the plaintiff's consolidated action in California,
on July 1, 1999, the Superior Court of the State of California,
ruling from the bench, denied the plaintiffs' motion to have their
lawsuit certified as a class action, stating, among other things,
that plaintiffs' lawsuit did not present common questions of fact.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership, Morgan Stanley Dean Witter Spectrum Strategic L.P.
("Spectrum Strategic") and Morgan Stanley Dean Witter Spectrum
Global Balanced L.P. ("Spectrum Global Balanced") , 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 S-
1, which became effective on January 31, 1996 (SEC File Number 333-
00494); such units were allocated as follows: the Partnership
9,000,000, Spectrum Strategic 6,000,000 and Spectrum Global
Balanced 5,000,000. The
<PAGE>
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). The Partnership
registered an additional 10,000,000 Units pursuant to another
Registration Statement on Form S-1, which became effective January
21, 1999 (SEC File Number 333-68779). The managing underwriter for
the Partnership is DWR.
Units are being sold at monthly closings as of the last day of each
month at a price equal to 100% of the Net Asset Value of a Unit as
of the date of such monthly closing.
Through June 30, 1999, 20,585,942.079 Units were sold, leaving
12,414,057.921 Units unsold as of June 30, 1999. The aggregate
price of the Units sold through June 30, 1999 is $270,738,748.
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
<PAGE>
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)
August 13, 1999 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and Chief Financial
Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
Morgan Stanley Dean Witter Spectrum Technical L.P. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 257,770,535
<SECURITIES> 0
<RECEIVABLES> 5,390,761<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 283,820,409<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 283,820,409<F3>
<SALES> 0
<TOTAL-REVENUES> 19,970,052<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,940,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,029,059
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,029,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,029,059
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscriptions receivable of $4,610,252 and
interest receivable of $780,509.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $20,659,113.
<F3>Liabilities include redemptions payable of $1,825,402,
accrued brokerage fees of $1,587,941, accrued management fees of
$876,105 and incentive fees payable of $430,097.
<F4>Total revenues include realized trading revenue of $13,840,196,
net change in unrealized of $1,749,845 and interest income of
$4,380,011.
</FN>
</TABLE>
